Premium
THE SLX MODEL
Author(s) -
Halleck Vega Solmaria,
Elhorst J. Paul
Publication year - 2015
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/jors.12188
Subject(s) - spatial econometrics , econometrics , econometric model , complement (music) , spillover effect , specification , economics , contrast (vision) , parameterized complexity , computer science , macroeconomics , biochemistry , chemistry , algorithm , artificial intelligence , complementation , gene , phenotype
We provide a comprehensive overview of the strengths and weaknesses of different spatial econometric model specifications in terms of spillover effects. Based on this overview, we advocate taking the SLX model as point of departure in case a well‐founded theory indicating which model is most appropriate is lacking. In contrast to other spatial econometric models, the SLX model also allows for the spatial weights matrix W to be parameterized and the application of standard econometric techniques to test for endogenous explanatory variables. This starkly contrasts commonly used spatial econometric specification strategies and is a complement to the critique of spatial econometrics raised in a special theme issue of the Journal of Regional Science (Volume 52, Issue 2). To illustrate the pitfalls of the standard spatial econometrics approach and the benefits of our proposed alternative approach in an empirical setting, the Baltagi and Li (2004) cigarette demand model is estimated.