GMM estimation with cross sectional dependence

This paper presents a spatial model of dependence among agents using a metric of economic distance. Measurements of this economic distance provide cross-sectional data with a structure similar to that provided by the time index in time-series data. Generalized method of moments estimators using such dependent data are shown to be consistent and asymptotically normal. This paper presents a class of non-parametric, positive semi-definite covariance matrix estimators that allow for general forms of dependence characterized by economic distance. These covariance matrix estimators are shown to remain consistent when economic distances are not precisely observed. (C) 1999 Elsevier Science S.A. All rights reserved. JEL classification: C50; C14.