ORIGINAL ARTICLE
THE SLX MODEL†
Solmaria Halleck Vega,
J. Paul Elhorst,
Solmaria Halleck Vega
Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands
Search for more papers by this authorJ. Paul Elhorst
Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands
Search for more papers by this authorSolmaria Halleck Vega,
J. Paul Elhorst,
Solmaria Halleck Vega
Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands
Search for more papers by this authorJ. Paul Elhorst
Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands
Search for more papers by this author†
The authors gratefully acknowledge James LeSage and Kelley Pace for their thoughtful review of a previous version in December 2012, as well as valuable comments from participants of the 59th Annual North American Meetings of the Regional Science Association International, Ottawa, November 2012, in particular Dennis Robinson and Oleg Smirnov, the Sorbonne University seminar in Paris, April 2013, the Econometrics of Social Interaction Symposium, University of York, May 2013, the 12th International Workshop Spatial Econometrics and Statistics, Université d’Orléans, June 2013, in particular Raymond Florax, the 53rd European Regional Science Association Congress, Palermo, August 2013. The authors also gratefully acknowledge the managing editor Mark Partridge and four anonymous referees for their numerous insightful comments and constructive suggestions that have helped to significantly improve their work. The authors are responsible for any errors that may remain and for the views expressed in the paper.
ABSTRACT
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.
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