space and growth: a survey of empirical evidence ... - ResearchGate

32 Maria Abreu, Henri L.F. de Groot and Raymond J.G.M. Floraxsystem, so that the spatial effects in the model are global in nature. Second, the−1induced effects cause the diagonal elements of the matrix (1 − ρW ) β to beunequal to β.The total effect of an increase in x is the sum of the direct, indirect andinduced effects. The direct effects are not region-specific and are represented bythe estimated coefficient β. The indirect effects depend on the spatial orderingimplied by the weights matrix and are typically region-specific. The inducedeffects are region specific as well. It is therefore incorrect to compare thecoefficient β of the spatial lag model with the coefficient β in an OLS model,since the first represents only the direct marginal effect of an increase in x, whilethe second represents the total marginal effect.The column sum of the elements of the spatial multiplier matrix for regioni represents the total effect in all regions j of an exogenous shock in region i,while the row sum for region i represents the total effect on region i of asimultaneous shock in all regions j. Typically the former are region-specific,whereas the latter are not. Hence the magnitude of the impact of the shockdepends on where it occurs.This heterogeneity in the total effects can be exploited when constructingthe model. For example, we may be interested in the impact that improvingproperty rights in one country has on other countries in the region. The spatialeconometrics literature has tended to focus on a rather technical interpretation ofthe results, while it could be providing interesting policy implications.93.2.2. Distinction between global and local effectsThe spatial econometrics literature has tended to focus on the structuralform of the spatial lag and spatial error models, in which the spatial lag terms(Wy, Wx, Wε) appear directly on the right-hand side of the model. As we haveseen in the previous section, failure to consider the model in its reduced form canlead to problems in interpreting the estimated coefficients. As with the spatial lagmodel, the spatial effects captured by the spatial error model are global in thesense that a shock at any location will be transmitted to all other locationsfollowing the spatial multiplier process (Anselin, 2002).The over-reliance of the literature on the spatial error and spatial lagmodels has tended to obscure other models available to capture spatial effects.One possibility is the spatial cross-regressive model, which consists of includingthe spatial lag of one or more explanatory variables on the right hand side. Anexample is Lall and Yilmaz (2001), who include the spatial lag of human capital9 See also Easterly and Levine (1998) for a non-technical discussion on the spatial multiplier, froma non-spatial econometrics point of view.