SDM (Spatial Durbin Model)

The spatial Durbin model occupies an interesting position in the field of spatial econometrics. It is the reduced form of a model with cross-sectional dependence in the errors and it may be used as the nesting equation in a more general approach of model selection.

spatial econometricscross-sectional dependencenesting equation

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Quoted from: Mur, Jesús, and Ana Angulo. "The spatial Durbin model and the common factor tests." Spatial Economic Analysis 1, no. 2 (2006): 207-226. https://doi.org/10.1080/17421770601009841 

The spatial Durbin model occupies an interesting position in the field of spatial econometrics. It is the reduced form of a model with cross-sectional dependence in the errors and it may be used as the nesting equation in a more general approach of model selection. Specifically, in this equation we obtain the common factor tests (of which the likelihood ratio is the best known) whose objective is to discriminate between substantive and residual dependence in an apparently misspecified equation. Our paper tries to delve deeper into the role of the spatial Durbin model in the problem of specifying a spatial econometric model. We include a Monte Carlo study related to the performance of the common factor tests presented in the paper in small sample sizes.

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Durbin, James (2021). SDM (Spatial Durbin Model), Model Item, OpenGMS, https://geomodeling.njnu.edu.cn/modelItem/69ac1b2a-d138-47fa-98c2-ee9bc60ffbe1
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