Expanding the recent spatial econometrics literature on hierarchical models of , this work proposes an extension of the autoregressive spatial hierarchical model (HSAR) to a Durbin spatial hierarchical model (HSDM) that allows taking into account the spillovers produced in the independent variables.
For this, the proposed model is estimated to analyze the production function of 263 European regions nested in 28 different countries for years 2000, 2007 and 2014. The results seem to indicate that the proposed model produces results similar to the HSAR model or improves them taking into account the influence that capital
and employment levels may have in other regions. Furthermore, this model allows analyzing the process of regional and national spillovers and, country influence on the regions.