Essays In Spatial Econometrics

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Spatial econometrics is a subfield of econometrics that deals with the treatment of spatial interactions in regression models for cross sectional and panel data.

Chapter 1: This is the first paper that highlights the role of spatial interactions, in the context of bankruptcy laws, in the entrepreneurship decision. This chapter is in two parts: one of which relates to the birth, and the other to the death, of businesses. The focus of the paper is on small businesses in the US. Small firms represent more than 90% of all enterprises and play a large role in entry and exit in the US. Further, the US has traditionally had pro-debtor bankruptcy laws. Hence this paper asks whether laws that facilitate easy exit, such as bankruptcy laws, are an important consideration in entry (and exit) of small businesses. This paper studies the decision of an entrepreneur to begin (or end) a business in a particular state, as a function of bankruptcy regulations and other business variables in that state as well as those in neighboring states. The study uses longitudinal household level data from the SIPP (Census) dataset. I estimate a random effects probit model with a lagged endogenous variable. The paper finds that higher bankruptcy exemptions in neighboring states lower the probability of starting a business in the state of residence. The bankruptcy exemption in one's own state has a significant and positive impact on entrepreneurship.

Chapter II: This paper is a first attempt to empirically model determinants of FDI flows to emerging market economies, using a spatial approach. The paper uses data on FDI inflows to 29 emerging market and developing economies for the period 1980-2000. Apart from various country characteristics, we include a corruption perception index and an index of labor productivity as determinants of these flows. The unique contribution of this paper is to include a weighted average of these conditions in "neighbor countries" amongst factors that may explain FDI flows into a country. Results indicate that corruption perception and labor productivity, in both host and neighbor countries, significantly determine FDI inflows to a host country.