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University of Groningen Cross-sectional dependence and regional labor market dynamics Halleck Vega, Sol Maria IMPORTANT NOTE: You are advised to consult the publisher's version (publisher's PDF) if you wish to cite from it. Please check the document version below. Document Version Publisher's PDF, also known as Version of record Publication date: 2016 Link to publication in University of Groningen/UMCG research database Citation for published version (APA): Halleck Vega, S. M. (2016). Cross-sectional dependence and regional labor market dynamics [Groningen]: University of Groningen, SOM research school Copyright Other than for strictly personal use, it is not permitted to download or to forward/distribute the text or part of it without the consent of the author(s) and/or copyright holder(s), unless the work is under an open content license (like Creative Commons). Take-down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Downloaded from the University of Groningen/UMCG research database (Pure): http://www.rug.nl/research/portal. For technical reasons the number of authors shown on this cover page is limited to 10 maximum. Download date: 11-07-2017 Acknowledgements Recently, Pope Francis shared an African proverb: “If you want to go fast, go alone; if you want to go far, go with others.” It is a tremendous pleasure to have this opportunity to thank those I met along the way and those who have always been by my side, who have in different ways provided meaning and light to my life. Someone I met along the way is Paul Elhorst and I could not have imagined a more wonderful PhD supervisor. His interest in regional economic issues, spatial econometrics, and enthusiasm for research inspired me to further explore these shared interests. I am profoundly grateful for the research collaboration and the gift of learning so many things in the process. In addition to having the honor of working with an excellent scholar, his sincerity, encouragement, and generosity to discuss questions and share knowledge made it an extraordinary experience. I also greatly appreciated his careful attention to detail and valuable advice in all stages of the project. Lunch breaks and conversations on other topics, among which was football was also enjoyable. Of course, first Barcelona and then Ajax; most importantly, Messi is the best. I hereby admit that Amsterdam is a beautiful city, although the comparison with Paris is another story (cf. Stellingen 1). Being far away from home, I express my gratitude for the welcome and support from Paul and his family over these past years. It was a pleasure to take part in your own achievements including your Oratie (Inaugural lecture) “Van ruimtelijke econometrie naar regionaal beleid.” Veel gefeliciteerd en bedankt voor alles. Paul, muchísimas gracias por todo. I would also like to gratefully acknowledge my assessment committee. It is an honor for me that they read and commented on my thesis, as well as their time and effort to be present at the defense ceremony. Rob Alessie has provided valuable input on papers and econometrics over the past years. Rob’s great sense of humor also makes me laugh, for which I am also grateful. I thank Henk Folmer and Alain Pirotte for their thoughtful and useful feedback. I had the pleasure of meeting Henk when Paul and I were working on issues raised in his previous work and at some seminars. vii viii I also had the pleasure of meeting Alain Pirotte at the 14th International Workshop on Spatial Econometrics and Statistics at the University Panthéon-Assas Paris II in May 2015. As the main organizer of the conference, he and everyone involved provided an academically rewarding experience. Special thanks to Bart Los. He was the first person from the University of Groningen that I had contact with when applying for the research master. I will never forget the support, right from the first email exchanges, and the time and consideration of everyone at the SOM Research Institute and Faculty of Economics and Business for all these years. The opportunities to attend seminars, conferences, and have access to excellent services such as from the library enhanced the learning experience. I have also enjoyed living in Groningen and have been treated so well and treasure this in my heart. Special thanks to Arthur de Boer (muchas gracias por toda tu ayuda) and Ellen Nienhuis (hartelijk bedankt). The knowledge and feedback from professors and supervisors of projects in the research master is also much appreciated. In particular, a big thank you to Erik Dietzenbacher and Bart Los. I feel thankful to have had the opportunity to learn and the hard work involved in the master program helped prepare for the years to come. During the PhD, the work environment was productive and had many moments of laughter. For this, in addition to my supervisor, I thank my office mates Raun and Eduard, members of the Department of Economics, Econometrics and Finance, and Spatial Economics section. I am grateful to both Dirk Stelder and Jan Oosterhaven for help and feedback on work. I enjoyed the section outings, thank Jan for encouraging me to learn Dutch, and Martine Koolman for her warmth and support, Ruud Koning for being a great Chair of the department, and Marianne van Kuiken who joined after Lies Baars retired. I thank Lies and Herma van der Vleuten for their warmth and laughter. In addition, many thanks to Herma, Steven Brakman, Erik Dietzenbacher, Paul Elhorst, and Harry Garretsen for helping me in the job application process and I am happy to have accepted a post-doctoral position at the Paris School of Economics. Mom, from my heart to yours, I first thank you for being you. You are the most special person and I love you and am blessed to have you in my life. Thank you for caring for me ever since I was inside your womb and for giving me this marvellous gift of life. No matter what, rain or shine, you have been and are there at my side with ix your unconditional love, support, and understanding. There is nothing comparable to that. I am very proud of this achievement and dedicate it to you. We are now both doctors!! También me viene a la mente lo que dijo recientemente el Papa Francisco: “En la objetividad de la vida tiene que entrar la capacidad de soñar y un joven que no es capaz de soñar está clausurado en sí mismo. Está encerrado en sí mismo. Cada uno a veces sueña cosas que nunca van a suceder. Pero suéñalas, deséalas, busca horizontes, ábrete, ábrete a cosas grandes”. Madre mía, gracias de corazón por alentarme a soñar, a siempre ver mas allá, por inculcarme la importancia de aprender, de crecer como persona, de abrir el corazón a las cosas buenas, a la luz de la vida. Mamá, como un cielo lleno de estrellas, tú haces la vida brillar. Con mucho amor también agradezco a todos mis seres queridos. En especial a mis bisabuelos Daniel Sacasa y Julia Cuadra, mi abuelo Roberto, Francisco Cuadra Robleto y tía Esilda que en paz descansen, mi abuela Violeta, mi tía madrina Jeanine, mi tía Margine, mis tíos Daniel y Roberto y mis primos Daniel, Miguel de Jesús, Jeanina, Robertito y Abraham. También agradezco a María, Fernando, Alba, Elifas, Julian, Elisa y Renata. Cada uno forma, de manera distinta, un lugar muy especial en mi corazón y sin ustedes la vida no sería igual. En particular, doy gracias a las mujeres de fé, fuertes, triunfadoras, inteligentes, trabajadoras, sinceras y de corazones puros que no solo me han apoyado y dado alegría a lo largo de la vida, sino que han sido ejemplo de inspiración, en particular mi abuelita Julia, abuela Violeta, mi madre, Yana y Mar. Abuelo Roberto, mi Papayeto, y Albita, los quiero mucho y aunque ya no están en vida, están en mi alma. Abuela Violeta, mi Mamayeta, no hay palabras para agradecerte por enseñarme lo que más importa en la vida, lo cual guardo en lo más profundo de mi ser. Te amo tanto güerita. Finalmente, pero sobre todo, doy gracias a Dios y la Virgen María por el antes, el ahora, el después y por siempre. Sagrado Corazón de Jesús, tuyo es mi corazón, Solmaría Milagros Paris, October 28, 2015 Contents 1 Introduction 1 2 Modeling Regional Labor Market Dynamics in Space and Time 11 2.1 Introduction ............................................................................................................. 11 2.2 Methodology ................................................................................................ 13 2.2.1 Blanchard and Katz model ............................................................... 13 2.2.2 Extension of Blanchard and Katz model: A dynamic spatial panel data approach .............................................................. 17 2.2.3 Direct effects and spatial spillover effects ....................................... 19 2.2.4 Specification and selection of spatial weights matrix ...................... 20 2.3 Data ............................................................................................................. 28 2.4 Results ......................................................................................................... 31 2.4.1 Direct and indirect effects vs. coefficient estimates of spatial model .................................................................................... 32 2.4.2 Statistical significance and interpretation of direct, indirect, and total effects .................................................................. 34 2.4.3 Impulse-response analysis ............................................................... 37 2.5 Conclusions ................................................................................................. 41 3 The SLX Model 45 3.1 Introduction ............................................................................................................. 45 3.2 Spatial econometric models and corresponding direct and spillover effects ......................................................................... 50 xi xii Contents 3.3 The SLX model and parameterizing W ....................................................... 59 3.4 Empirical application ................................................................................... 63 3.4.1 State cigarette demand model .......................................................... 63 3.4.2 Standard approach ............................................................................ 66 3.4.3 The SLX approach ........................................................................... 72 3.4.4 Endogenous regressors ..................................................................... 75 3.5 Conclusions .................................................................................................. 78 4 Labor Force Participation across the EU Regions: Insights Using a Time-Space Recursive Model with Endogenous Regressors 81 4.1 Introduction ............................................................................................................ 81 4.2 Theoretical and empirical background ........................................................ 84 4.3 Spatial and temporal dependence ................................................................ 88 4.4 Time-space recursive model ........................................................................ 94 4.5 Empirical analysis ........................................................................................ 96 4.5.1 Data .................................................................................................. 96 4.5.2 Estimation results ........................................................................... 102 4.6 Conclusions ............................................................................................... 114 5 A Regional Unemployment Model Simultaneously Accounting for Serial Dynamics, Weak and Strong Cross-Sectional Dependence 117 5.1 Introduction .......................................................................................................... 117 5.2 Evolution and stylized facts ................................................................................. 119 5.3 Methodology .............................................................................................. 129 5.3.1 Models of weak cross-sectional dependence ................................. 129 5.3.2 Models of strong cross-sectional dependence ................................ 130 Contents xiii 5.3.3 Two-stage models .......................................................................... 131 5.3.4 Simultaneous model ....................................................................... 133 5.4 Results ....................................................................................................... 135 5.5 Conclusions ............................................................................................... 143 References 145 Samenvatting (Summary in Dutch) 159