Baltagi article on simultaneous system of spatial autoregressive equations published in ER
Apr 30, 2015
EC3SLS Estimator for a Simultaneous System of Spatial Autoregressive Equations with Random Effects
Badi H. Baltagi & Ying Deng
Econometric Reviews, April 2015
Badi H. Baltagi
This article derives a 3SLS estimator for a simultaneous system of spatial autoregressive equations with random effects which can therefore handle endoegeneity, spatial lag dependence, heterogeneity as well as cross equation correlation. This is done by utilizing the Kelejian and Prucha (1998) and Lee (2003) type instruments from the cross-section spatial autoregressive literature and marrying them to the error components 3SLS estimator derived by Baltagi (1981) for a system of simultaneous panel data equations. Their Monte Carlo experiments indicate that, for the single equation spatial error components 2SLS estimators, there is a slight gain in efficiency when Lee (2003) type rather than Kelejian and Prucha (1998) instruments are used. However, there is not much difference in efficiency between these instruments for spatial error components 3SLS estimators.