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SERC/Urban and Spatial Programme Discussion Paper
Estimating and Forecasting with a Dynamic Spatial Panel Data Model
Badi H. Baltagi, Bernard Fingleton and Alain Pirotte
November 2011
Paper No' SERCDP0095:
Full Paper (pdf)

JEL Classification: C33

Tags: panel data; spatial lag; error components; linear predictor; gmm; spatial autocorrelation

This paper focuses on the estimation and predictive performance of several estimators for the dynamic and autoregressive spatial lag panel data model with spatially correlated disturbances. In the spirit of Arellano and Bond (1991) and Mutl (2006), a dynamic spatial GMM estimator is proposed based on Kapoor, Kelejian and Prucha (2007) for the Spatial AutoRegressive (SAR) error model. The main idea is to mix non-spatial and spatial instruments to obtain consistent estimates of the parameters. Then, a linear predictor of this spatial dynamic model is derived. Using Monte Carlo simulations, we compare the performance of the GMM spatial estimator to that of spatial and non-spatial estimators and illustrate our approach with an application to new economic geography.