A generalized spatial panel data model with random effects

This paper proposes a generalized specification for the panel data model with random effects and first-order spatially autocorrelated residuals that encompasses two previously suggested specifications. The first one is described in Anselin’s (1988) book and the second by Kapoor, Kelejian, and Prucha (2006). Our encompassing specification allows us to test these models as restricted specifications. In partic-ular, we derive three LM and LR tests that restrict our generalized model to obtain (i) the Anselin model, (ii) the Kapoor, Kelejian, an