It is well known that most of the standard specification tests are not valid when the alternative hypothesis is misspecified. This is particularly true in the error component model when one tests for either random effects or serial correlation without taking account of the presence of the other...

In this study, we propose simple test statistics for identifying the source of spatial dependence in spatial autoregressive models with endogenous weights matrices. Elements of the weights matrices are modelled in such a way that endogenity arises when the unobserved factors that affect elements...