What is it about?

This paper adopts a spatial probit approach to explain interaction effects among cross-sectional units when the dependent variable takes the form of a binary response variable and transitions from state 0 to 1 occur at different moments in time. The model has two spatially lagged variables, one for units that are still in state 0 and one for units that already transferred to state 1. The parameters are estimated on observations for those units that are still in state 0 at the start of the different time periods, whereas observations on units after they transferred to state 1 are discarded, just as in the literature on duration modeling. Furthermore, neighboring units that did not yet transfer may have a different impact than units that already transferred. We illustrate our approach with an empirical study of the adoption of inflation targeting for a sample of 58 countries over the period 1985--2008.

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Why is it important?

We illustrate our approach with a study of the adoption of IT for a sample of 58 countries over the period 1985--2008. We investigate whether countries that did not adopt IT yet interact with other countries, thereby, making a distinction between countries that also did not adopt IT yet and countries that did.

Perspectives

Our spatial probit model has various applications in economics, business, and political studies. The approach can also be used to explain contagion of financial crises when countries enter crises at different times. Studies on the introduction of new brands and firms' entry decisions might also include transitions at different periods. Additionally, our spatial probit can be applied to analyze land use conversion models, where a landowner's decision to convert undeveloped land to farmland depends on current as well as past decisions of his/her neighbors.

Professor Paul Elhorst
Rijksuniversiteit Groningen

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This page is a summary of: Transitions at Different Moments in Time: A Spatial Probit Approach, Journal of Applied Econometrics, February 2016, Wiley, DOI: 10.1002/jae.2505.
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