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In many instances in empirical spatial analysis, the method of choice is a regression analysis, whereby a variable of interest (the dependent variable) is related in a linear way to a set of explanatory variables. When the data are cross-sectional, or consist of a cross-section observed at different points in time, there are complexities that are not accounted for by a standard regression technique, such as ordinary least squares. Addressing these complexities is the domain of spatial econometrics.

Spatial econometrics can be defined as a ‘subset of econometric methods that is concerned with the spatial aspects present in cross-sectional and space-time observations. Variables related to location, distance and arrangement (topology) are treated explicitly in model specification, estimation, diagnostic checking and prediction’(Anselin, 2006). The spatial aspects are referred to as spatial effects, consisting of spatial …