8 - Florax - Van Der Vlist - 2003

INTERNATIONAL REGIONAL SCIENCE REVIEW 26, 3: 223–243 (July 2003)
10.1177/0160017603254937
Florax, van der Vlist / SPATIAL
INTERNATIONAL
ECONOMETRICREGIONAL
DATA ANALYSIS
SCIENCE REVIEW (Vol. 26, No. 3, 2003) ARTICLE
SPATIAL ECONOMETRIC DATA ANALYSIS:

MOVING BEYOND TRADITIONAL MODELS
RAYMOND J. G. M. FLORAX
Department of Spatial Economics, Free University, Amsterdam, The Netherlands,
and Regional Economics Applications Laboratory (REAL),
University of Illinois at Urbana-Champaign, Urbana, rflorax@feweb.vu.nl
ARNO J. VAN DER VLIST

Department of Spatial Economics, Free University,
Amsterdam, The Netherlands, avlist@feweb.vu.nl
This article appraises recent advances in the spatial econometric literature. It serves as the
introduction to a collection of new papers on spatial econometric data analysis brought together
in this special issue, dealing specifically with new extensions to the spatial econometric model-
ing perspective. Although the initial development of the field of spatial econometrics has been
rather slow, the Dixit-Stiglitz revolution and the emergence of the New Economy Geography
have been instrumental in uplifting the significance and the use of spatial data analysis tech-
niques. Concurrent developments in other social sciences parallel this situation in economics.
The upsurge in spatial econometrics is, among other things, driven by the recognition that tradi-
tional spatial econometric models are insufficient to capture modern theoretical developments.
Therefore, this issue brings together a collection of articles on space-time and discrete choice
modeling, spatial nonstationarity, and the methodology and empirics of regional economic
growth models.
Keywords: spatial econometrics; data analysis; spatial regression models
It is difficult not to notice the upsurge in the advancement of econometric theory for
spatial cross-section models, the availability of easy-to-use software for spatial
data, and the use of spatial econometric techniques in applied research. In 1988,
Anselin and Griffith pointed out the negligence of regional science scholars toward
incorporating spatial data analysis techniques in applied research. In the early
1990s, Anselin and Rey (1991) reiterated this point, but they had already observed
indications of a gradual change. Ever since, the situation has altered radically, and it
is fair to say that nowadays, spatial data analysis techniques abound.
Recent conferences of constituent organizations of the Regional Science Asso-
ciation International (RSAI) have programmed special sessions on spatial econo-
metrics. This was the case at the Western Regional Science Association meeting in
Palm Springs, California, in 2001; the North American meeting in San Juan, Puerto
DOI: 10.1177/0160017603254937
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224 INTERNATIONAL REGIONAL SCIENCE REVIEW (Vol. 26, No. 3, 2003)
Rico, in 2002; and the European meeting in Dortmund, Germany, in 2002.1 A series
of special issues of journals and edited volumes reveals the progress that is being
made in the area of spatial econometrics (Anselin 1992a; Anselin and Florax
1995a; Anselin and Rey 1997; Pace 1998; Nelson 2002; Getis, Mur, and Zoller
forthcoming; Pace, Tiefelsdorf, and LeSage forthcoming). Theoretical advances
with respect to spatial econometric modeling are increasingly also published in
some of the topnotch journals in economics and econometrics (Dubin 1988; Pinkse
and Slade 1998; Conley 1999; Kelejian and Prucha 2001; Lee 2002). Funding orga-
nizations, such as the American National Science Foundation, finance programs in
which the integration of the spatial dimension in social science research forms
essentially the core of the program (i.e., the initiative to establish the Center for
Spatially Integrated Social Sciences [CSISS]) (see Goodchild et al. 2000; http://
www.csiss.org). As we will show below, the number of applied papers using spatial
statistical and econometric techniques is rapidly increasing as well.
We continue this article by discussing some of the history of spatial economet-
rics. Although the history dates back to the 1940s and 1950s, with subsequent siz-
able pushes in the 1970s and 1980s, the path of development remains rather flat
until the 1990s. We argue that recent theoretical developments in economics and
other social sciences induce a reorientation that includes spatial effects among the
main determinants of real-world processes. The reorientation is accompanied by an
increase in available spatially referenced data, which are usually easy to attain
through the Internet. We discuss several consequences of changes in data availabil-
ity, such as lower spatial scale, computational aspects, and visualization. Apart
from theory and data, the accessibility of appropriate software definitely goes a
long way in explaining the current upsurge in the use of spatial econometric
techniques.
Subsequently, we provide an overview of the main methodological contribu-
tions to spatial econometrics, and we review applications of spatial econometric
techniques according to areas demarcated in the subject index of the International
Regional Science Review (IRSR).2 We go on to argue that the above-mentioned the-
oretical developments and the increased data availability are starting to drive the
field of spatial econometrics away from the traditional spatial error and spatial lag
model and toward different and much broader directions now (see also Anselin
2002).
The proliferation of spatial econometrics into different directions motivated the
first author of this article to organize special sessions on spatial econometrics for
the 42nd European conference of the RSAI, which took place in Dortmund (Ger-
many) from 27-31 August 2002. Some fifteen papers, organized in six special ses-
sions, were presented.3 After the conference, we invited the participants to submit
their papers for this special issue. Two external reviewers per manuscript scruti-
nized the papers, following standard peer review procedures of IRSR. We now have
a series of articles that illustrates the recent proliferation of spatial econometrics to
very diverse areas of methodological concern and application. The articles cover
Florax, van der Vlist / SPATIAL ECONOMETRIC DATA ANALYSIS 225
the areas of space-time models, spatial hazard modeling, vector autoregressive

models with spatial interaction effects, and spatial nonstationarity. The issue con-
cludes with contributions to the empirics of regional economic growth using
exploratory spatial data analysis techniques, Markov chain modeling, and a simul-
taneous dynamic least squares estimator for a generalized spatial convergence
model. More detail about the individual contributions and promising avenues for
future research on spatial econometrics conclude our contribution.
SOME HISTORY
The history of spatial statistical and econometric data analysis goes back to the
work of statisticians such as Moran, Geary, and Whittle in the late 1940s and early
1950s. Initially, developments were rather slow, but they were decisively influ-
enced by the publication of three seminal books (Florax and Nijkamp forthcom-
ing). In 1973, Cliff and Ord devoted a monograph to spatial autocorrelation. Their
book primarily focuses on the statistical analysis of spatial data series, although
there is some attention for modeling as well. The modeling context is much more
pronounced in the work of the Dutch-Belgian economist Jean Paelinck, who coined
the term spatial econometrics in the early 1970s. Paelinck and Klaassen jointly
wrote the first monograph on spatial econometrics in 1979, stressing the need to
explicitly model spatial relations, epitomizing the asymmetry in spatial interrela-
tions and the role of spatial interdependence. The field was in those days pushed
ahead mainly by Dutch regional economists and British geographers and econo-
mists (e.g., Bartels, Brandsma, Hordijk, Ketellapper, and Nijkamp, in The Nether-
lands, and Fingleton, Haining, Ord, and Upton, in the United Kingdom). Later, the
center of activity shifted to the United States, where both economists and geogra-
phers concentrated on introducing new statistical tests and specifying and estimat-
ing spatial regression models. The modeling perspective was pondered and com-
prehensively treated in Luc Anselin’s (1988) book on methods and models in
spatial econometrics. He defined spatial econometrics as “the collection of tech-
niques that deal with the peculiarities caused by space in the statistical analysis of
regional science models” (p. 7). The modeling perspective distinguishes spatial
econometrics from the broader field of spatial statistics, the progress of which is
documented in, for instance, Cressie (1993).
Several reasons come to mind when trying to explain the initial lack of consider-
ation of spatial effects and the subsequent upsurge in the development and use of
spatial analysis tools. First, going back to classical economists such as Marshall,
economists have been preoccupied with the temporal rather than the spatial dimen-
sion of economic phenomena. This was a major nuisance pushing Walter Isard to
establish the interdisciplinary field of regional science, maintaining that (neo)clas-
sical economists are confined to analyzing a “wonderland of no spatial dimensions”
(Isard 1956, 24-25). This did contribute to the establishment of spatial economet-
rics some twenty years later but, in itself, was not sufficient to lead to a widespread
use of spatial econometric techniques. Although spatial econometrics is definitely

one of the perks of the Isard push for a regional science, the Dixit-Stiglitz revolution
has had a pervasive influence as well (Florax and Nijkamp forthcoming). It raised
attention for imperfect competition and increasing returns to scale, which later
became prominent elements in the “New Economic Geography,” next to the con-
cept of spatial externalities (Fujita, Krugman, and Venables 1999; Fujita and
Krugman forthcoming). In other social sciences, similar attention shifts have
occurred. Increasingly, the popularity of neighborhood effects in sociology, associ-
ated with the Chicago school, and the revival of social interaction theory have
caused researchers to think about spatial interaction, spatial spillovers, and spatial
dependence (see Anselin 2003 and the references therein).
Second, the availability of georeferenced data has increased considerably over
the past two decades. The Internet obviously contributes to easy access and thus
stimulates the use of spatial data with concurrent use of specialized technology,
such as Geographic Information Systems (GIS) and Global Positioning Systems
(GPS) and remote sensing technology (Goodchild et al. 2000; see also the examples
in Nelson 2002). The increased availability of geographical data has several impli-
cations for the substance of spatial econometric techniques. First, the restriction to
one spatial scale determined by data availability is relaxed. This creates the oppor-
tunity to experiment with models at different levels of spatial aggregation. The rele-
vance of the scale aspect is well known. Straightforward aggregation over space is
only warranted if the phenomenon at stake is homogeneously distributed over
space (Anselin 1988, 26-27) and the effect of spatial scale on test statistics is perva-
sive (Griffith, Wong, and Whitfield forthcoming). The aspects of spatial scale and
identification come together in the modifiable areal unit problem (Arbia 1989;
Amrhein 1995; Amrhein and Reynolds 1996). Identification issues are particularly
severe if limited data are available, and this is one of the reasons why spatial process
models, which provide exogenous spatial structure through the spatial weights
matrix to avoid the incidental parameter problem, have been used so intensively.
With more data, it becomes feasible to use direct representation models, which are
characterized by estimable distance decay functions rather than exogenously pro-
vided spatial structure.4 The latter type of models provides a much more detailed
and data-driven approach to model specification. An additional advantage is that
direct representation models circumvent the computational problems associated
with large-scale spatial process models, such as computational efficiency, accu-
racy, and storage, although progress has been made to solve these computational
problems (Pace 1997; Pace and Barry 1997a, 1997b; Smirnov and Anselin 2001).
Third, for a long time, the freestanding SpaceStat computer program (Anselin
1992b, 2000) was the only full-blown package for spatial econometric analysis. It
was complemented by computer code documenting routines to estimate spatial
models in mainstream software packages, such as Limdep and Shazam (Griffith
1988; Anselin and Hudak 1992). Slightly later, extensions such as S+SpatialStats
(Kaluzny et al. 1997), INFO-MAP (Bailey and Gatrell 1995), and SAGE (Haining,
Wise, and Signoretta 2000) were introduced. The improvement in the availability
of easy-to-use software obviously contributes to the proliferation of spatial econo-
metric applications. Nowadays, the two most complete software packages are
SpaceStat (Anselin 1992b, 2000; see http://www.terraseer/spacestat/spacestat_
specs.html) and James LeSage’s extensive spatial econometrics toolkit developed
in MATLAB (see http://www.spatial-econometrics.com). Anselin’s package
stands out for its combination of exploratory tools, linked to ESRI’s ArcView soft-
ware through a freely available extension, and misspecification tests and estimators
for spatial models. LeSage’s toolkit is slightly more oriented toward modeling and
contains an array of Bayesian routines in addition to the classical tests and estima-
tors.5 The development of software tools has been very rapid over the past decade.
On the CSISS Web site, Luc Anselin presents a spatial tools search engine that
indexes a list of URLs and software archives of already more than 700 individual
software titles. A spatial tool listing of links to portals (i.e., collections of links) is
available as well. The development of software is expected to continue to proceed
rapidly now. So-called “open-source projects” are promising. These projects are
typically Web based, and they essentially constitute a platform and a common lan-
guage for anybody who can credibly contribute to the development of software
tools. Platform-independent software that is currently being developed in the con-
text of the CSISS project (see Goodchild et al. 2000) will further facilitate and boost
the application of spatial data analysis techniques.
HIGHLIGHTS AND THE PROLIFERATION

OF SPATIAL ECONOMETRIC TECHNIQUES
It is virtually impossible to give a detailed account of the development and the
achievements of spatial econometrics in the space-constrained context of a single
section of an article. What follows is therefore by far not comprehensive but instead
deals with some highlights of the methodological spatial econometric literature as
well as a series of examples showing the proliferation of applying spatial econo-
metric techniques to different areas in regional science.
The consideration of spatial effects in applied research involves a series of logi-
cal steps in the analysis. We highlight some of the important methodological devel-
opments by means of these steps, distinguishing exploratory data analysis, mis-
specification testing in spatial regression models, and the estimation of spatial
regression models.6
Spatial effects is a catchall term referring to both spatial dependence and spatial
heterogeneity. Spatial dependence (or autocorrelation) and heterogeneity are usu-
ally not easily discernable in an empirical sense (Anselin 2001b). They compete as
meaningful but mutually exclusive interpretations of the spatial distribution of real-
world phenomena. In the spatial statistical and econometric literature, however,
substantially more attention has been given to testing for spatial autocorrelation as
compared to spatial heterogeneity because the extent of heterogeneity can be
assessed using standard statistical tools (Cliff and Ord 1981). Currently, several sta-
tistics measuring the extent of spatial autocorrelation are available, and their
asymptotics and small sample behavior are well documented. Moran’s I and the G
statistic of Getis and Ord (1992) are the most commonly used statistics. The statis-
tics have been disaggregated to investigate heterogeneity by means of local ver-
sions of the statistics.7 The payoff of exploiting the above cross-correlation statis-
tics is maximized if their use is embedded in a more extensive exploratory spatial
data analysis, typically referred to as ESDA. A proper ESDA tool uses generally
available statistical functionalities, such as box plots, charts, and histograms, but it
typically focuses in particular on the detection of spatial patterns through maps and
scatterplots (specifically, the Moran scatterplot) (see Anselin 1996), preferably in a
setting with dynamically linked windows. The visualization of spatial relations is
the subject of a voluminous literature and obviously bears close ties to geographic
information systems (see Haining, Wise, and Ma 1998; Wise, Haining, and
Signoretta 1999).
Typically, the next step in applied spatial data analysis focuses on confirmatory
or explanatory modeling8 and starts with misspecification testing in a regression
context. Except for a limited number of direct representation cases, most spatial
econometric models are spatial process models. The development of mis-
specification tests in a maximum likelihood framework, the derivation of their
asymptotic properties, and the associated small sample properties have been a long-
standing interest of various researchers in the field. The toolbox of misspecification
tests includes the regression variant of Moran’s I (see Cliff and Ord 1981; Kelejian
and Prucha 2001) and large sample tests derived by Kelejian and Robinson (1992,
1998). Furthermore, a battery of unidirectional, multidirectional, and robust
Lagrange multiplier (LM) tests is on hand (see Anselin and Griffith 1988; Anselin
1988, 2001c; Anselin and Rey 1991; Anselin and Florax 1995b; Anselin et al. 1996;
Kelejian and Robinson 1998; de Graaff et al. 2001; Anselin and Moreno forthcom-
ing; Florax and de Graaff forthcoming; Saavedra 2003).9 The tests focus on detect-
ing spatially correlated residuals due to any cause (i.e., a spatially autoregressive or
moving average error structure, erroneously omitted spatially correlated variables,
or a nonlinear relationship), or they test for well-defined misspecifications such as a
spatial autoregressive error process or an erroneously omitted spatially lagged
dependent variable. It may be difficult to reconcile potentially conflicting results of
a series of tests. The results of simulation experiments on specification searches
indicate, however, that the “classical” approach, relying on the probability values of
the different tests in a model without spatial effects, performs well in terms of find-
ing the “correct” model (see Florax and Folmer 1992; Florax, Folmer, and Rey
forthcoming).
Once spatial effects are discovered, there is obviously a need to specify a spatial
regression model accounting for such spatial effects and to use an appropriately
spatially adapted estimator. A first approach, which recently regained attention,
centers on spatial filtering of the existing variables in such a way that one can, in the
end, resort to the use of ordinary least squares (see Getis 1995; and, more recently,
Griffith and Tiefelsdorf 2002; Getis and Aldstadt forthcoming). A second approach
builds on the work by Casetti (1997) and focuses primarily on the specification of
spatial heterogeneity by means of geographically weighted regression
(Fotheringham, Brunsdon, and Charlton 1998). Most of the work in this area, how-
ever, deals with the derivation of maximum likelihood, instrumental variables, and
general methods of moments estimators for the model with spatially autoregressive
errors, the so-called spatial lag model that contains a spatially lagged dependent
variable, or the spatial error component model introduced by Kelejian and Robin-
son (1995). The use of Bayesian approaches is advocated and applied in LeSage
(1997). The early work dealing with the derivation of properties of estimators is
reviewed in Cliff and Ord (1981) and Anselin (1988). More recently, Kelejian and
Prucha (1998, 1999), Bell and Bockstael (2000), and Lee (2001a, 2001b, 2002)
have provided further theoretical results. Results of simulation experiments reveal-
ing the small sample properties of various estimators are scarce (see Anselin 1980;
Florax 1992; Das, Kelejian, and Prucha 2003), but they invariably show that relying
on ordinary least squares is not an adequate estimation procedure.
Where do these theoretical advances in spatial econometrics lead us? Does the
theoretical work translate into applications of spatial econometric techniques in
diverse areas of regional science? To show the proliferation of the use of spatial
econometric techniques in applied research, we tie on to the subject index pub-
lished in each winter edition of the IRSR. The subject index, covering more than
sixty major journals in regional science, indicates a broad array of topics, ranging
from natural resources, human resources, economic growth and development, and
urban and regional issues to social and political issues, as well as other policy and
applications. Without aiming to be comprehensive, the review below shows that,
particularly in the areas of housing and real estate, as well as economic growth and
development, the utilization of spatial econometric data analysis diffuses rapidly.
The area of environmental economics and natural resource management is a major
growth area that has been catching up recently.
For a long time, the use of spatial data analysis techniques was underused in
applications dealing with agricultural, environmental, and natural resource topics.
Many of the subjects in this area are, however, inherently spatial. The spread of con-
taminated water, the diffusion of air pollution (both point- and non-point-source
pollution), the location of waste management and other hazardous facilities, the
effect of environmental policy on foreign direct investment and the potential of
environmental dumping, contamination patterns of animal disease, land use, and
the valuation of nature areas and pollution all constitute subjects to which spatial
econometric techniques can be fruitfully applied. Following, among others, the
pleas of Bockstael (1996) and Anselin (2001a) to explicitly incorporate space in the
analysis of environmental and agricultural topics, a small literature is now emerg-
ing. Lark (2000) is one of the first to use spatial econometric techniques dealing
with soil organic matter, and recently, Nelson (2002, 197) has brought together a
collection of articles to introduce agricultural economists to “new analytical

approaches involving spatial data.” Florax, Voortman, and Brouwer (2002) apply
the traditional spatial econometric models to precision agriculture and review the
fast-growing literature dealing with variable rate application. Fewer works are
available that deal with environmental issues. Rupasingha and Goetz (2001) incor-
porate space in the analysis of the environmental Kuznets curve, and Eliste and
Fredriksson (forthcoming) pay attention to environmental stringency. The spatial
econometric analysis of natural resources is gradually starting off by considering
deforestation (e.g., Nelson and Hellerstein 1997) and air quality (Arbia and Lafratta
1997; Murdoch, Sandler, and Sargent 1997; Guldman and Kim 2001; Kim, Phipps,
and Anselin forthcoming).
It should be noted that the spatial econometric techniques used in agri-environ-
mental applications typically boil down to rather straightforward applications of
misspecification testing using LM tests and subsequent estimation of the traditional
spatial error or spatial lag model. The same applies to the field of human resources.
This is a broad area of studies, among other things, including studies on labor mar-
kets and unemployment. Molho (1995), Buettner (1999), and Haughton et al.
(forthcoming) are good examples of studies dealing with the traditional spatial
econometric modeling perspective, although Buettner (1999) adds an interesting
example of block bootstrapping for statistical inference in a space-time context.
The literature on population-employment dynamics is a second example of studies
belonging to the field of human resources. Boarnet’s (1994) well-known contribu-
tion to this literature broadens the traditional Carlino-Mills model by including spa-
tial spillover effects. Many replications for different regions and time periods are
subsequently published. Henry et al. (1999) include an interesting application
because it also allows for spatial heterogeneity, and Rey and Boarnet (forthcoming)
supply a taxonomic framework to classify different types of spatial simultaneous
equation models and discuss problems of identification. Finally, we like to mention
the area considering knowledge spillovers of academic institutions as an area where
traditional spatial econometric models have been applied. Interesting examples of
studies using spatial econometric techniques to model local spatial spillovers of
knowledge production include Florax (1992); Anselin, Varga, and Acs (1997);
Varga (1998); and Acs (2002), among others.
Departures from the more traditional models are more frequent in the areas of
economic growth and development, as well as urban and regional issues. Initially,
the regional analysis of economic growth and development began by merely incor-
porating spatial effects (heterogeneity in the form of so-called spatial clubs, as well
as spatial dependence) using traditional spatial econometric modeling techniques
in a neoclassical theoretical setup (Chatterji and Dewhurst 1996; Rey and Montouri
1999; Fingleton 2003). Subsequently, exploratory spatial data analysis techniques
have gained popularity (Rey and Montouri 1999; Le Gallo and Ertur 2003; Mossi
et al. 2003 [this issue]). Interestingly enough, however, considerable effort is now
being put into adapting Markov chain analysis to a setting that includes spatial
interaction effects (Fingleton 1999a; Rey 2001; Bickenbach and Bode 2003 [this
issue]).
Finally, the last area for which we note some interesting applications is con-
cerned with the analysis of urban and regional issues. The application of spatial
econometric techniques is not limited to one specific topic but again extends to a
whole range of topics. First, some studies deal with the inclusion of neighborhood
effects in explaining the spatial distribution of indicators related to, for instance,
wages (Ioannides forthcoming), crime (Messner and Anselin 2003), health (Ellen,
Mijanovich, and Dillman 2001), or schooling (Fotheringham, Charlton, and
Brunsdon 2001). Second, there is an extensive literature on housing and real estate.
It is obvious that for the assessment of price variation, neighborhood spillovers in
prices or rents are likely to be relevant. The empirical analysis of this type goes back
to Can (1992) and shows clear evidence of substantial spatial autocorrelation in
transaction prices across housing markets, mainly because neighborhoods tend to
have similar structural characteristics and share location amenities (see Basu and
Thibodeau 1998). Employing spatially referenced estimators in housing and real
estate substantially improves the quality of predictions and statistical inferences
(Dubin 1998; Gelfand 1998; Clapp, Kim, and Gelfand 2002). The special issue on
spatial statistics and real estate (Pace 1998)—particularly the articles by Pace,
Barry, and Sirmans (1998); Pace, Barry, Clapp, et al. (1998); and Dubin, Pace, and
Thibodeau (1999)—provides useful overviews of this literature. Recently, Hwang
and Quigley (2003) analyzed the time course development of condominium
prices in Singapore. Their approach is different from the habitual hedonic pricing
model considered almost throughout the literature, in the sense that they use a wide-
ranging time series of georeferenced data to explain the temporal development of
prices, taking into account spatial spillovers in an intricate econometric model.
Their model has an explicit link to theory. Linking up theory with spatial economet-
ric specifications is also at the heart of the final area that we like to mention. This is
the area dealing with interacting agents (Anselin 2002). The interaction among
agents is modeled using spatial correlation across “jurisdictions.” For instance,
Bivand and Szymanski (2000) specify the competition among municipalities in a
compulsory competitive tendering system for waste management, and Case,
Rosen, and Hines (1993) and Brueckner (1998) test for strategic interaction among
governments with respect to budget spillovers and fiscal policy interdependence,
respectively.
The above concise review of applications evidently shows the rapid proliferation
of spatial econometric techniques in various subject areas. Many of these applica-
tions are still strongly data driven rather than theory driven (Anselin 2002) and
commonly use a relatively simple framework of exploratory spatial data analysis,
followed by spatial regression modeling extended with misspecification tests.
Gradually, however, things are changing, and we are moving beyond the stage
where the traditional spatial modeling approach suffices.
MOVING BEYOND TRADITIONAL MODELS

The articles brought together in this special issue go beyond applying the tradi-
tional spatial econometric framework consisting of exploratory spatial data analy-
sis and subsequent model fitting using spatial misspecification tests. They deal with
several interesting extensions and new modeling approaches. In this section, we
provide some detail on the relevant context for each contribution, and we summa-
rize some of the main results of the articles.
The contribution by Paul Elhorst (2003 [this issue]) offers a comprehensive
treatment of the specification and estimation of four spatial panel data models that
are developed by adapting the familiar traditional panel data specifications.10 Rela-
tively little work is available on spatial panel data models (Anselin 1988, 2001b;
Elhorst 2001), although the relevance of these models is getting more and more evi-
dent because of increased data availability as well as the greater potential to model
interaction behavior of agents with a firm theoretical basis. The increasing use of
panel data sets in applied research in spatial settings necessitates the incorporation
of spatial dependence and/or spatial heterogeneity. Elhorst discusses four widely
used models: the spatial fixed and random effect models, as well as the fixed and
random coefficient spatial error models. He summarizes what can be learned from
the general econometric literature on panel data models and adapts the general
models to the spatial context. He presents the respective likelihoods and discusses
estimation strategies that are useful in applied research. Moreover, he treats poten-
tial problems of the spatially adapted versions of the traditional panel data models
and suggests workable solutions to these problems.
The literature on spatial effects in limited dependent variable models is getting
increasingly rich. Kelejian and Prucha (2001), Fleming (forthcoming), and Pinkse
(forthcoming) cover misspecification testing in spatial discrete choice models, and
McMillen (1992, 1995), Dubin (1995), Pinkse and Slade (1998), Beron and
Vijverberg (forthcoming), and LeSage (2000) present classical as well as Bayesian
solutions to the estimation of spatial probit and logit models. A model that has
received attention in applications rather than in the theoretical spatial econometric
literature is the spatial counterpart of the hazard model. Brigitte Waldorf (2003 [this
issue]) opens up this area by considering the spatial hazard model from a concep-
tual point of view. She explores the analogy between duration in time and space and
concludes that, notwithstanding the mathematical analogy between time or dura-
tion and space or distance, conceptual problems evoke substantial difficulties in the
interpretation of spatial duration models. Following a concise introduction to dura-
tion models, she carries out limited experiments demonstrating how spatial hazard
models can be used in empirical spatial research. She concludes that the modeling
perspective should change from the static to the dynamic perspective to be able to
fruitfully analyze spatial phenomena in a hazard framework.
Jesús Mur and Javier Trívez (2003 [this issue]) take up the discussion on spatial
unit roots and spatial cointegration originally initiated by Fingleton (1999b). They
argue that spatial dynamics are so much different from temporal dynamics that it is
difficult to implement the notions of integration and unit roots in the multivariate
spatial case as compared to the univariate time context. For example, the spatial
data-generating process that allows for the inclusion of a unit root bears little
resemblance to a mechanism of accumulating shocks in time series. The relevance
of integration in a spatial setting is therefore still in need of further theoretical guid-
ance and conceptual development. Mur and Trívez use Monte Carlo experiments to
show that the risk of obtaining spurious regression results when using integrated
variables remains. The symptoms related to unit roots can be identified, but these
symptoms may also be caused by other factors. Their experimental results show
anomalies, such as unexpected loss of statistical power, for spatial autocorrelation
tests. This leads the authors to suggest that much more emphasis should be put on
exploratory spatial data analysis, and in applied research, one should be vigilantly
aware of the risk of attaining spurious regressions in spatial econometric models.
Valter Di Giacinto (2003 [this issue]) argues that measuring the output effect of
monetary policy decisions in structural vector autoregression (SVAR) models that
neglect spatial feedback or spillover effects results in serious misspecification.
Building on the earlier work by Carlino and DeFina (1999), he carefully treats spa-
tial interdependencies arising through different spatial propagation mechanisms
that smooth out across space. Three mechanisms, related to trade channels, finan-
cial transmissions, and what he calls “other mechanisms” (i.e., mainly driven by
commuting), are considered. As an extension to existing modeling approaches, Di
Giacinto argues that simultaneous propagation between regions occurs, and he
therefore suggests accounting for spatial interaction effects in SVAR models by
incorporating information on geographical proximity. He considers three different
VAR approaches: a model with no interdependencies, a second model with a one-
period time lag interaction, and a model with contemporaneous feedback allowing
for simultaneous propagation of effects across regions. He derives the appropriate
maximum likelihood estimators, and in an application using data that have been
used before in this literature, he shows that contemporaneous feedback effects of
monetary policy decisions should not be ignored.
Giuseppe Arbia and Jean Paelinck (2003 [this issue]) present a new approach to
the traditional neoclassical growth convergence modeling. In the preceding sec-
tion, we already indicated various contributions that explicitly incorporate spatial
effects in neoclassical growth models, but Arbia and Paelinck take a different route.
They propose a Lotka-Volterra predator-prey system to model regional conver-
gence in a continuous-time framework that also allows for the inclusion of geo-
graphical effects. They generalize the traditional predator-prey model to a
multiregional system and show that the concept of convergence implied in such a
model differs from the classical convergence concept. In particular, they demon-
strate that each region or system may follow its own trajectory, leading to a series of
distinct convergence paths. The classical β-convergence model can be seen as a
special case of their Lotka-Volterra model. The parameters of a discrete analogue of
the generalized model are estimated using a simultaneous dynamic least squares
estimator. Arbia and Paelinck illustrate their approach with a comparison of the
empirical results generated for a traditional convergence equation, a spatially con-
ditioned convergence equation, and the Lotka-Volterra model for 119 European
regions over the time period from 1980 to 1994. The empirical results are satisfac-
tory and point in the same direction for all models considered. The obvious advan-
tage of the Lotka-Volterra model is, however, that it allows for much more flexibil-
ity across space.
Markov chain theory offers another approach to modeling income convergence.
In a spatial setting, this approach has been explored in Fingleton (1999a) and Rey
(2001). Bickenbach and Bode (2003) follow up on this work, but they focus on sta-
tistical testing. They propose tests of homogeneity and independence over time and
across space to counteract the tendency in most Markov chain studies to ignore
checking the validity of the statistical assumptions of homogeneity and independ-
ence of the transition probabilities underlying the approach. This is a serious omis-
sion because the estimated transition probabilities, and hence the limiting income
distribution, will be misleading if regions follow different processes. Furthermore,
if the income dynamics of one system depends on the dynamics of its neighbors, the
transition probabilities should be estimated conditional upon the income class for
neighboring regions. Bickenbach and Bode illustrate the importance of testing for
the homogeneity and independence using panel data of relative per capita income
of U.S. states during the period from 1929 to 2000. They find that for both the first
half and the second half of the twentieth century, homogeneity over time, as well as
spatial homogeneity, is rejected. Their test results also indicate the relevance of
considering dependence over space and time.
The contribution of Mossi et al. (2003) demonstrates the usefulness of using spa-
tial exploratory techniques in analyzing the spatial distribution of economic growth
and perfectly illustrates the value of the testing framework outlined by Bickenbach
and Bode (2003). Mossi and his colleagues investigate regional growth dynamics in
Brazil during the time period from 1939 to 1998 and empirically establish the rele-
vance of spatial heterogeneity and spatial dependence. Initially, they follow the tra-
ditional spatial exploratory data analysis approach, using global and local Moran’s
I, scatterplots, and choropleth maps. This analysis reveals the existence of two spa-
tial clusters: a low-income cluster in northeast Brazil and a high-income cluster in
southeast Brazil. Subsequently, they investigate the dynamics of regional economic
growth using Quah’s transitional dynamics framework. Following Bickenbach and
Bode’s work on statistical testing, they assess whether the transition probabilities
are constant over time and across space. Their results indicate that time stationarity
cannot be rejected during the period from 1939 to 1998, but the transition probabili-
ties are not constant over space.
CONCLUSION
In this introductory article to the special issue “Spatial Econometric Data Analy-
sis: Models, Extensions, and Applications,” we have shown the upsurge in the theo-
retical development and the use of spatial econometric techniques. Arguably, this is
related to an intensified interest in spatial dimensions in theoretical research and to
the availability of easy-to-use software for visualization, exploratory data analysis,
and the estimation of spatial econometric models. We have documented that
numerous case studies using spatial econometric techniques are becoming avail-
able. They cover such diverse areas as environmental and natural resources (includ-
ing agriculture), the functioning of labor markets and unemployment, population-
employment dynamics, spatial externalities of various kinds, economic growth
models, housing and real estate, and interacting agents. Much of this work is still
using rather traditional spatial econometric techniques, particularly exploratory
spatial data analysis techniques (Moran’s I, the G statistic, scatterplots, and maps),
and model fitting with misspecification tests geared toward verifying whether a
spatially correlated error structure is applicable or if spatially lagged variables have
erroneously been omitted.
Things are starting to change, however. The developments in theory and the
desirability of having theory rather than data driving the modeling process are grad-
ually steering spatial econometrics away from the traditional techniques. The con-
tributions to this special issue illustrate this development. They focus on space-time
modeling, spatial hazard models, structural vector autoregressive models, spatial
nonstationarity, and new methods for the specification, testing, and estimation of
regional economic growth processes.
Most of the articles indicate elements for future research, but we would like to
highlight some promising avenues for future research in this introduction as well.
First, much more work is needed on space-time modeling. In particular, the exten-
sion to general models incorporating spatial, temporal, and space-time correlations
would be useful. This holds for panel data models in general but also for models
focusing on diffusion. Temporal and spatial diffusion models are well established,
but their integration into one modeling framework still needs further work. More-
over, the development of misspecification tests is still lagging behind in this area. It
would be interesting to bring together a toolbox of unidirectional and multidirec-
tional misspecification tests along the spatial and temporal dimensions. Second, we
have a better view now of the conceptual implications of transforming duration in
temporal hazard models to distance in spatial hazard models. An interesting further
development could be to derive the associated likelihoods with a subsequent focus
on estimation issues. In particular, it may be useful to see whether the use of the tra-
ditional spatial weights matrix is feasible and simplifies the intricate specification
problem.11 Third, we are starting to better understand the translation of the unit root
and cointegration concepts from the time-series literature to the spatial perspective.
The concurrent chance of obtaining spurious spatial regressions has been
demonstrated in experimental simulation work. Applied empirical work is still lag-

ging behind and may be fruitful to further underpin and demonstrate the relevance
of this topic. Fourth, the structural vector autoregressive approach deserves more
application in a spatial setting as well. The derivation of the associated likelihoods
in this special issue may contribute to increasing its future usage in applied work,
but also in this case, further work on the development of misspecification tests is
desirable (the only sources to date that deal with multiple-equation models are
Anselin and Kelejian 1997; Rey and Boarnet forthcoming). Finally, the contribu-
tions focusing on economic growth show that interesting generalizations of the tra-
ditional convergence model, epitomizing the relevance of space, are possible.
Obviously, further empirical work is necessary, particularly concentrating on con-
ditioning the growth equation in a regional setting and hence solving some of the
data availability problems at this spatial scale. Furthermore, in the growth litera-
ture, generalized methods of moments estimation is advocated to account for omit-
ted variable bias and endogeneity, and it has been shown to have a substantial influ-
ence on the estimated convergence rates (Abreu, Florax, and de Groot
forthcoming). Exploring the use of such an estimator in models accounting for spa-
tial effects is an interesting avenue for further research, as is broadening the analy-
sis of economic growth to space-time models, which may eventually help to cir-
cumvent the use of a spatial process specification.
NOTES
1. See http://www.regionalscience.org for an overview of Regional Science Association Interna-
tional (RSAI) conferences and access to local Web sites. The results of these special sessions are in
Getis, Mur, and Zoller (forthcoming) and Pace, Tiefelsdorf, and LeSage (forthcoming). This special
issue contains some of the papers presented at the Dortmund conference. Although this overview
focuses on regional science, concurrent developments take place in (quantitative) geography, sociology,
agricultural economics, real estate economics and housing, and slowly but steadily also in environmen-
tal and natural resource economics.
2. Details about the subject index of the International Regional Science Review (IRSR) are pro-
vided in issue number 4 of each volume (see also below).
3. See http://www.ersa2002.org for an overview of the program. Two papers on spatial economet-
rics were presented in the Young Scientists session.
4. See, for instance, Anselin and Bera (1998) and Anselin (2001c, 2003) for an explanation of the
distinction between spatial process models and direct representation models.
5. Some of the more popular online spatial econometric software resources are the spatial statisti-
cal toolbox of Kelly Pace (see http://spatial-statistics.com/software_index.htm), containing MATLAB
routines and programs for large spatial samples; SPDEP Spatial Analysis Tools, designed by Roger
Bivand (see http://cran.r-project.org/src/contrib/PACKAGES.html#spdep), with spatial autocorrelation
and regression routines written in R; and the commercial package Winbugs-Geobugs (see http://
www.mrc-bsu.cam.ac.uk/bugs/winbugs/geobugs.shtml), comprising routines for spatial models using
the Gibbs sampler and Markov chain Monte Carlo estimation.
6. We discard interesting but more specialized issues such as the specification of weights, edge
effects and the modifiable areal unit problem, infill asymptotics, spatial nonstationarity, limited depend-
ent variable models, and so forth.
7. Anselin (1995) refers to the disaggregated statistics as local indicators of spatial association
(LISA, for short). Strictly speaking, the local Gi statistic does not belong to the LISA class because the
overall or global statistic is not equal to the (scaled) sum of the local statistics.
8. Unless the model specification is strongly guided by theory, the distinction between the explor-
atory and the explanatory phase is much more blurred in the actual research process, and the researcher
usually iterates back and forth using tools from each realm (Haining, Wise, and Signoretta 2000).
9. Florax and de Graaff (forthcoming) give a taxonomy of the different misspecification tests and
an assessment of their small sample performance in a comparative response surface setting.
10. The term panel data is not used in a strict sense here. It would be more precise to use the term
time series of spatial cross-section data, but we want to avoid its wordiness.
11. This goes back to an observation of Jim LeSage, who discussed a conference presentation of the
paper on spatial hazard models.
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INTERNATIONAL REGIONAL SCIENCE REVIEW 26, 3: 223–243 (July 2003)

SPATIAL ECONOMETRIC DATA ANALYSIS:

ARNO J. VAN DER VLIST

Keywords: spatial econometrics; data analysis; spatial regression models

the areas of space-time models, spatial hazard modeling, vector autoregressive

use of spatial econometric techniques. Although spatial econometrics is definitely

HIGHLIGHTS AND THE PROLIFERATION

collection of articles to introduce agricultural economists to “new analytical

MOVING BEYOND TRADITIONAL MODELS

demonstrated in experimental simulation work. Applied empirical work is still lag-

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