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Spatial Simultaneous Equation Model: Case Study Empirical Analysis of Regional Economic Growth in Central Java Province

Setiawan, I.S. Ahmad, Sutikno


Econometric model can be a single equation or simultaneous equations involving multiple equations. Classical econometrics has largely ignored these two issues that violate the classical Gauss-Markov assumptions used in regression modelling. With the development of spatial econometrics initially to a single equation, the equation has been developed for spatial simultaneous. The following spatial simultaneous equation model can be viewed as an extension of the widely used spatial single equation model. Estimation method for simultaneous equations is a classical two and three stage least squares estimators (2SLS or 3SLS), but the estimation method for parameter of the spatial simultaneous equations model is a generalized spatial two
stage least squares procedure (GS2SLS). In this paper we consider to application this method for the model of economic growth in Central Java. The data of indicators economic growth of 2007 was taken to be analyzed. The results of estimation for parameters indicate population, revenue and gross regional domestic product are significant to model. Median household income is more attractive than local government expenditure. It is shown by significant of this variable when as exogenous of local government expenditure’s endogenous. Testing of spatial dependency with Moran’s I test indicate almost all equation significant (working population and local government expenditure), for queen weighted.


spatial simultaneous equation, 2SLS, 3SLS, generalized spatial two stage least squares

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