Spatial econometrics modeling of poverty

The analysis of spatial dependence and spatial heterogeneity as well as issues on model choice and model selection- how to decide between specification, both nested and non-nested have been predominant in spatial econometric modeling. This paper highlights the concept of spatial econometrics, and applies it to analyze the spatial dimensions of poverty and its determinants using data from Bangladesh. It is shown both theoretically and empirically that the OLS estimates of the poverty function suffer from upward bias. Alternative spatial econometric models showed that both spatial lag and spatial error are statistically significant, indicating that the OLS model is misspecified. The significance of the spatial effects parameters also suggest that spatial poverty trap exist in the country suggesting a more targeted-anti poverty intervention.