Modelling spatial regimes in farms technologies

Abstract

We exploit the information derived from geographical coordinates to endogenously identify spatial regimes in technologies that are the result of a variety of complex, dynamic interactions among site-specific environmental variables and farmer decision making about technology, which are often not observed at the farm level. Controlling for unobserved heterogeneity is a fundamental challenge in empirical research, as failing to do so can produce model misspecification and preclude causal inference. In this article, we adopt a two-step procedure to deal with unobserved spatial heterogeneity, while accounting for spatial dependence in a cross-sectional setting. The first step of the procedure takes explicitly unobserved spatial heterogeneity into account to endogenously identify subsets of farms that follow a similar local production econometric model, i.e. spatial production regimes. The second step consists in the specification of a spatial autoregressive model with autoregressive disturbances and spatial regimes. The method is applied to two regional samples of olive growing farms in Italy. The main finding is that the identification of spatial regimes can help drawing a more detailed picture of the production environment and provide more accurate information to guide extension services and policy makers. Keywords Unobserved heterogeneity • Spatial dependence • Cobb-Douglas production function • Olive production JEL codes D24 • C14 • Q12

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“…This finding is also visible in the speed and half‐life of convergence. Additionally, we implement the Spatial Chow test as offered in Billé et al (); Annoni et al (). Test results reject the null hypothesis for the equality of coefficient estimates gathered from the two groups.…”

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