Specification searches in spatial econometrics: The relevance of Hendry's methodology

Raymond J.G.M. Florax, Hendrik Folmer, Sergio J. Rey

Research output: Contribution to journalArticlepeer-review

314 Scopus citations


This article brings together a number of new specification search strategies in spatial econometric modeling. In the literature, experimental results for several forward stepwise strategies aimed at remedying spatial dependence, have been reported. Essentially, these strategies boil down to the expansion of a spatial linear regression model with spatially lagged variables, conditional upon the results of misspecification tests. We investigate a Hendry-like specification strategy, starting from the spatial common factor model and subsequently reducing the number of spatially lagged variables on the basis of significance tests. The experimental simulations pertain to various small to large sample sizes, with spatial processes modeled on regular lattice surfaces. Our main conclusion is that the classical forward stepwise approach outperforms the Hendry strategy in terms of finding the true data generating process as well as in the observed accuracy of the estimators for spatial and non-spatial parameters. It also dominates concurrent forward stepwise strategies recently suggested in the literature.

Original languageEnglish (US)
Pages (from-to)557-579
Number of pages23
JournalRegional Science and Urban Economics
Issue number5
StatePublished - Sep 2003


  • Autocorrelation
  • Hendry methodology
  • Pre-testing
  • Spatial econometrics
  • Specification strategy

ASJC Scopus subject areas

  • Economics and Econometrics
  • Urban Studies


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