Generalized Spatial Three-Stage Least Square (GS3SLS) for Unemployment Rate and Economic Growth Modelling in East Java

Spatial models have attracted considerable interest in recent economics both on an empirical and theoretical level. One of the most widely used spatial models is the single equation model. Spatial simultaneous equation model as an extension of the widely used spatial single equation models can use more than one equation. Generalized Spatial Three-Stage Least Square (GS3SLS) estimator is one of the spatial simultaneous models. This paper presents the assessment of spatial simultaneous equations with GS3SLS method including Queen, Rock and Customized Contiguity. GS3SLS with customized contiguity (distance inverse) can share the best model of other continuity. It can be concluded that there is a relationship between the unemployment rate and economic growth in East Java. Labour Force Participation Rate (LFPR) and economic growth significantly affect Unemployment Rate and Human Development Index (HDI) and unemployment rates significantly affect economic growth. By using the customized contiguity, both the unemployment rate and economic growth give simultaneous spatial effect.