Empirical Economics

, Volume 40, Issue 1, pp 69–94 | Cite as

Structural interactions in spatial panels

  • Arnab BhattacharjeeEmail author
  • Sean Holly


Until recently, considerable effort has been devoted to the estimation of panel data regression models without adequate attention being paid to the drivers of interaction amongst cross-section and spatial units. We discuss some new methodologies in this emerging area and demonstrate their use in measurement and inferences on cross-section and spatial interactions. Specifically, we highlight the important distinction between spatial dependence driven by unobserved common factors and those based on a spatial weights matrix. We argue that purely factor-driven models of spatial dependence may be inadequate because of their connection with the exchangeability assumption. The three methods considered are appropriate for different asymptotic settings; estimation under structural constraints when N is fixed and T → ∞, whilst the methods based on GMM and common correlated effects are appropriate when TN → ∞. Limitations and potential enhancements of the existing methods are discussed, and several directions for new research are highlighted.


Cross-sectional and spatial dependence Spatial weights matrix Spatial interactions Monetary policy committee Generalised method of moments 

JEL Classification

E42 E43 E50 E58 


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Copyright information

© Springer-Verlag 2010

Authors and Affiliations

  1. 1.School of Economics and FinanceUniversity of St AndrewsSt AndrewsUK
  2. 2.Faculty of EconomicsUniversity of CambridgeCambridgeUK

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