CORRECTING FOR SPATIAL EFFECTS IN LIMITED DEPENDENT VARIABLE REGRESSION: ASSESSING THE VALUE OF "AD-HOC" TECHNIQUES

A common test for spatial dependence in regression analysis with continuous dependent variables is the Moran's I. For limited dependent variable models, the standard definition of a residual breaks down because yi is qualitative. Efforts to correct for potential spatial effects in limited dependent variable models have relied on ad-hoc methods such as including a spatial lag variable or using a regular sample that omits neighboring observations. Kelejian and Prucha have recently developed a version of Moran's I for limited dependent variable models. We present the statistic in a more accessible way and use it to test the value of previously-used ad-hoc techniques with a specific data set. Keywords: Morans I, Spatial Autocorrelation, Limited Dependent Variable Models, Land-Use Change, Geographical Information Systems (GIS),