Model Validation and Specification Tests in Spatial Econometric Models

In philosophical discussions about the nature of progress in science it is often maintained that the development of theory cannot proceed without some form of reality—based validation. This leads to a continual process of interaction between theory formation and empirical assessment, motivated in part by the observation of phenomena which are not explained by existing theories, and by the failure of theoretical constructs to be reflected in experimental situations. Essential to this process is a set of clear standards or criteria of validity, and a uniform methodology to apply these to the theoretical constructs under scrutiny. Typically, this is based on a formal probabilistic framework.