journal article Jan 01, 2024

Spatial Unit Roots and Spurious Regression

Econometrica Vol. 92 No. 5 pp. 1661-1695 · JSTOR
View at Publisher Save 10.3982/ecta21654
Abstract
This paper proposes a model for, and investigates the consequences of, strong spatial dependence in economic variables. Our findings echo those of the corresponding “unit root” time series literature: Spatial unit root processes induce spuriously significant regression results, even with clustered standard errors or spatial HAC corrections. We develop large‐sample valid unit root and stationarity tests that can detect such strong spatial dependence. Finally, we use simulations to study strategies for valid inference in regressions with persistent spatial data, such as spatial analogues of first‐differencing transformations. Regressions from Chetty, Hendren, Kline, and Saez (2014) are used to illustrate the issues and methods.
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Details
Published
Jan 01, 2024
Vol/Issue
92(5)
Pages
1661-1695
Funding
National Science Foundation
Cite This Article
Ulrich K. Müller, Mark W. Watson (2024). Spatial Unit Roots and Spurious Regression. Econometrica, 92(5), 1661-1695. https://doi.org/10.3982/ecta21654
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