Spatial Methods

68 Pages Posted: 25 Sep 2014

See all articles by Stephen Gibbons

Stephen Gibbons

London School of Economics & Political Science (LSE) - Department of Geography and Environment

Henry G. Overman

London School of Economics (LSE) - Department of Geography and Environment; Centre for Economic Policy Research (CEPR)

Eleonora Patacchini

Einaudi Institute for Economics and Finance (EIEF) ; IZA Institute of Labor Economics

Date Written: September 2014

Abstract

This paper is concerned with methods for analysing spatial data. After initial discussion on the nature of spatial data, including the concept of randomness, we focus most of our attention on linear regression models that involve interactions between agents across space. The introduction of spatial variables in to standard linear regression provides a flexible way of characteristing these interactions, but complicates both interpretation and estimation of parameters of interest. The estimation of these models leads to three fundamental challenges: the ‘reflection problem’, the presence of omitted variables and problems caused by sorting. We consider possible solutions to these problems, with a particular focus on restrictions on the nature of interactions. We show that similar assumptions are implicit in the empirical strategies - fixed effects or spatial differencing - used to address these problems in reduced form estimation. These general lessons carry over to the policy evaluation literature.

Keywords: agglomeration, neighbourhood effects, spatial analysis, spatial econometrics, weights matrix

JEL Classification: C1, C5

Suggested Citation

Gibbons, Stephen and Overman, Henry G. and Patacchini, Eleonora, Spatial Methods (September 2014). CEPR Discussion Paper No. DP10135, Available at SSRN: https://ssrn.com/abstract=2501618

Stephen Gibbons (Contact Author)

London School of Economics & Political Science (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
[44] (0)20 7955 6245 (Phone)
[44] (0)20 7955 7773 (Fax)

HOME PAGE: http://www.lse.ac.uk/people/s.gibbons@lse.ac.uk/

Henry G. Overman

London School of Economics (LSE) - Department of Geography and Environment ( email )

Houghton Street
London, WC2A 2AE
United Kingdom
+44 20 7955 6581 (Phone)
+44 20 7955 7412 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Eleonora Patacchini

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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