Back in our Equipment Investment And Economic Growth, Larry Summers and I thought we needed to make a big deal about dealing with spatial autocorrelation. It looks like we were very right: Morgan Kelly: The Standard Errors of Persistence: "A large literature on persistence finds that many modern outcomes strongly reflect characteristics of the same places in the distant past... unusually high t statistics... severe spatial auto-correlation.... We analyse 27 persistence studies in leading journals and find that in most cases if we replace the main explanatory variable with spatial noise the fit of the regression commonly improves; and if we replace the dependent variable with spatial noise, the persistence variable can still explain it at high significance levels.... The results of persistence studies, and of spatial regressions more generally, might be treated with some caution in the absence of reported Moran statistics and noise simulations...
#noted
