Spatial econometrics deals with spatial dependence and spatial heterogeneity, critical aspects of the data used by regional scientists. These characteristics may cause standard econometric techniques to become inappropriate. In this book, I combine several recent research results to construct a comprehensive approach to the incorporation of spatial effects in econometrics. My primary focus is to demonstrate how these spatial effects can be considered as special cases of general frameworks in standard econometrics, and to outline how they necessitate a separate set of methods and techniques, encompassed within the field of spatial econometrics. My viewpoint differs from that taken in the discussion of spatial autocorrelation in spatial statistics – e.g., most recently by Cliff and Ord (1981) and Upton and Fingleton (1985) – in that I am mostly concerned with the relevance of spatial effects on model specification, estimation and other inference, in what I ca Il a model-driven approach, as opposed to a data-driven approach in spatial statistics. I attempt to combine a rigorous econometric perspective with a comprehensive treatment of methodological issues in spatial analysis.