Author : Shi Ryoung Chang(Bank of Korea)

This paper proposes a Lagrange Multiplier (LM) test for spatial interactions in the presence of origin-side heterogeneous effects. We consider a spatial panel data model that allows interaction strengths to vary across units, capturing heterogeneity in how units transmit influence through a given spatial structure. Based on this specification, we test the null hypothesis of homogeneous spatial interactions. The proposed test follows an asymptotic chi-square distribution with m degrees of freedom, where m denotes the number of units allowed to exhibit heterogeneity, and its asymptotic power is derived under local alternatives. Monte Carlo simulations show that the proposed test exhibits good finite sample performance. Finally, we apply the proposed test to an empirical example of international knowledge spillovers through trade, highlighting the heterogeneous roles played by technological leaders across countries.