Spatial Correlation in Household Choices in Rural Indonesia* |
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Authors: | John Gibson Bonggeun Kim Susan Olivia |
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Institution: | 1. Department of Economics, University of Waikato, Private Bag 3105, Hamilton, New Zealand;2. Department of Economics, Seoul National University, 599 Gwanak‐ro, Gwanak‐gu, Seoul 151‐746, Korea;3. Department of Econometrics and Business Statistics, Monash University, Clayton, Victoria 3168, Australia |
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Abstract: | Many household choices in developing economies are correlated with choices of nearby households, because nearby locations have unobserved factors in common and households and their neighbors interact. However, models recognizing these spatial correlations are rarely used because few surveys give exact household locations. In the present paper, we use unusual data from rural Indonesia, where distances between households can be measured, to examine spatial effects in equations for non‐farm enterprises' share of household incomes and food's share of total household budgets. Our results indicate that ignoring spatial correlations in household choices might cause bias and inferential errors and could distort recommended policy interventions aiming to raise living standards in rural Asia. |
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Keywords: | spatial correlation non‐farm enterprises food Engel curves Indonesia C31 O17 |
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