I have panel data of 200 regions over 20 years. My goal is to estimate a dynamic spatial (space-time) panel model. I would like to employ an extension of model used in Debarsy/Ertur/LeSage (2009): “Interpreting dynamic space-time panel data models” and in Parent/LeSage: “Spatial dynamic panel data models with random effects,” Regional Science & Urban Economics. 2012, Volume 42, Issue 4, pp. 727-738.  See the attached word-file for more information (formulas).

I got three questions:

1.) Is it possible to add lagged exogenous covariates?

Referring to Anselin (2008) in “The Econometric of Panel Data (page: 647)” this would result in an identification  problem, since  Y_t-1 already includes X_t-1.

2.) I want to use a “twoways” (region and year) fixed effects specification instead of a random effects. Does that lead to any complications?

In my view, it should be possible to de-mean the data first and then apply the MCMC sampler in usual fashion. Is that correct?

3.) As a last step, I try to add a non-dynamic spatial error term (SAR). Note that the spatial weights (row-stand.) are different for the spatial lag (durbin-part) and spatial error. Is that possible?