Prediction Using Panel Data Regression with Spatial Random Effects

This paper considers some of the issues and difficulties relating to the use of spatial paneldata regression in prediction, illustrated by the effects of mass immigration on wages andincome levels in local authority areas of Great Britain. Motivated by contemporary urbaneconomics theory, and using recent advances in spatial econometrics, the panel regression haswages dependent on employment density and the efficiency of the labour force. There aretwo types of spatial interaction, a spatial lag of wages, and an autoregressive process for errorcomponents. The estimates suggest that increased employment densities will increase wagelevels, but wages may fall if migrants are under-qualified. This uncertainty highlights the factthat ex ante forecasting should be used with great caution as a basis for policy decisions.panel data, spatially correlated error components, economic geography, spatialeconometrics

TESTING THE NEG MODEL : FURTHER EVIDENCE FROM PANEL DATA

Local wage variations in the UK are explained by two non-nested rival hypotheses. The first derives from new economic geography theory, in which wages depend on market access. The second come from urban economics theory, giving a reduced form with wage rates dependent on employment density. The paper examines whether one of these rivals is encompassed by the other by fitting an artificial nesting model using three alternative panel data estimators. The estimates indicate that neither hypothesis is encompassed by its rival, suggesting a need for new, more comprehensive, theory.PANEL DATA, SPATIALLY CORRELATED ERROR COMPONENTS, MARKET ACCESS, NEW ECONOMIC GEOGRAPHY, SPATIAL ECONOMETRICS, NON-NESTED HYPOTHESIS

Simulating Wages and House Prices Using the NEG*

The paper incorporates house prices within an NEG framework leading to the spatial distributions of wages, prices and income. The model assumes that all expenditure goes to firms under a monopolistic competition market structure, that labour efficiency units are appropriate, and that spatial equilibrium exists. The house price model coefficients are estimated outside the NEG model, allowing an econometric analysis of the significance of relevant covariates. The paper illustrates the methodology by estimating wages, income and prices for small administrative areas in Great Britain, and uses the model to simulate the effects of an exogenous employment shock.new economic geography, real estate prices, spatial econometrics

The new economic geography versus urban economics : an evaluation using local wage rates in Great Britain

This paper tests two competing models, one deriving from new economic geography theory (NEG) emphasising varying market potential, the other with a basis in urban economics theory (UE) in which the main emphasis is on producer service linkages. Using wage rate variations across small regions of Great Britain, the paper finds that, taking commuting into account, it is UE theory rather than NEG theory that has explanatory power. However since the two hypotheses are non-nested, the evaluation of the competing hypotheses is difficult and therefore the conclusions are provisional. Nevertheless this paper provides evidence that we should be cautious about the ability of NEG to work at all levels of spatial resolution, and re-emphasises the need to focus on supply-side variations in producer services inputs and labour efficiency variations, including the role of commuting, in local economic analysis.

Testing the 'new economic geography': a comparative analysis based on EU regional data

This paper evaluates 'new economic geography' theory by comparing it with a competing non-nested model derived from urban economics. Using bootstrap inference and the J-test, the paper shows that while NEG theory is supported by the data, it needs to be modified to achieve this, and it is not the only, or even the best or simplest, explanation of regional wage variations across the EU.'new economic geography', urban economics, bootstrap, J test

The effects of agglomeration on wages: evidence from the micro-level

This paper estimates individual wage equations in order to test two rival non-nested theories of economic agglomeration, namely New Economic Geography (NEG), as represented by the NEG wage equation and urban economic (UE) theory , in which wages relate to employment density. The paper makes an original contribution by evidently being the first empirical paper to examine the issue of agglomeration processes associated with contemporary theory working with micro-level data, highlighting the role of gender and other individual-level characteristics. For male respondents, there is no significant evidence that wage levels are an outcome of the mechanisms suggested by NEG or UE theory, but this is not the case for female respondents. We speculate on the reasons for the gender difference.urban economics, new economic geography, household panel data.

Where is the Economics in Spatial Econometrics?

Spatial econometrics has been criticized by some economists because some model specifications have been driven by data-analytic considerations rather than having a firm foundation in economic theory. In particular this applies to the so-called W matrix, which is integral to the structure of endogenous and exogenous spatial lags, and to spatial error processes, and which are almost the sine qua non of spatial econometrics. Moreover it has been suggested that the significance of a spatially lagged dependent variable involving W may be misleading, since it may be simply picking up the e¤ects of omitted spatially dependent variables, incorrectly suggesting the existence of a spillover mechanism. In this paper we review the theoretical and empirical rationale for network dependence and spatial externalities as embodied in spatially lagged variables, arguing that failing to acknowledge their presence at least leads to biased inference, can be a cause of inconsistent estimation, and leads to an incorrect understanding of true causal processes.Spatial econometrics, endogenous spatial lag, exogenous spatial lag, spatially dependent errors, network dependence, externalities, the W matrix, panel data with spatial effects, multilevel models with spatial effects.

Entry Regulation and the Influence of an Incumbent Special Interest Group

The literature on both entry deterrence and the influence of special interest groups is extensive. In this paper we attempt to marry these strands of literature by developing a model of entry deterrence through interest group influence in an entry re-regulation context. In contrast to other entry deterrence models, we are able to investigate how product market rivalry affects the regulator's equilibrium entry decision, firms' output decisions, entry deterring activities and equilibrium welfare. We find that in equilibrium more collusive industries tend to lobby more but that the regulator attempts to compensate for weak price rivalry by allowing greater entry. The latter effect tends to offset the former, possibly entirely so that the overall welfare effect is ambiguous.entry regulation, entry deterrence, incumbent lobby group, Quasi-Cournot conjectural variation.

Multilevel Modelling with Spatial Effects

In multilevel modelling, interest in modeling the nested structure of hierarchical data has been accompanied by increasing attention to di¤erent forms of spatial interactions across different levels of the hierarchy. Neglecting such interactions is likely to create problems of inference, which typically assumes independence. In this paper we review approaches to multilevel modelling with spatial e¤ects, and attempt to connect the two literatures, discussing the advantages and limitations of various approaches.Multilevel Modelling, Spatial E¤ects, Fixed E¤ects, Random E¤ects, IGLS, FGS2SLS.