A Biparametric Approach to Spatial Autocorrelation

In spatial econometric models, autocorrelation among error terms is usually incorporated by means of the so-called contiguity matrix W, determining the interdependence between the spatial observations on the dependent variable. In this paper, the analysis is generalized by introducing two contiguity matrices, related to two autocorrelation parameters. This may be useful when dealing with variables representing flows between regions, where both the origin and the destination regions have a different impact on the autocorrelation scheme. It is shown analytically and illustrated empirically that the presence of such autocorrelation can be tested with the likelihood-ratio test, whereas the parameters can be estimated by the maximum-likelihood approach.