Spatial correlation in the disturbances of a linear interregional model

This paper deals with a treatment of spatial correlation, especially spatial correlation in the disturbances of a linear model. In section 1, a brief review of regionalization is presented together with the notion of contiguity. In section 2, definitions of first and higher order contiguity are proposed. Three different concepts of a contiguity coefficient are examined. A choice has been made in favour of the Moran coefficient. Section 3 deals with the topic of estimating the parameters in a linear model with spatially correlated disturbances. An extension of Durbin's method (known from time series analysis) to spatial cross section analysis is suggested. Section 4 presents an application of the theory of section 3 to a model developed by Somermeyer and Lammers (1960)