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Testing for Cross-Sectional Dependence in a RandomEffects Model

Author(s): Afees Salisu | Sam Olofin | Eugene Kouassi

Journal: Open Journal of Statistics
ISSN 2161-718X

Volume: 02;
Issue: 01;
Start page: 88;
Date: 2012;
Original page

Keywords: Cross-Sectional Dependence | Error Components Model | Lagrangian Multiplier (LM) Tests

This paper extends and generalizes the works of [1,2] to allow for cross-sectional dependence in the context of a two-way error components model and consequently develops LM test. The cross-sectional dependence follows the first order spatial autoregressive error (SAE) process and is imposed on the remainder disturbances. It is important to note that this paper does not consider alternative forms of spatial lag dependence other than SAE. It also does not allow for endogeneity of the regressors and requires the normality assumption to derive the LM test.
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