Can someone explain how to solve the following problem in a spatial auoregressive model. The form is:
where p is the SAR coefficient and W is a distance-weighting matrix with a 0-diagonal.
The world only consists of Poland, Germany, and Austria. The weighting matrix is such that a country with a land border receives a w=1 and 0 otherwise. So the Matrix looks as follows:
p = 0.5 and there is a shock to FDI in Poland of size 10. How much would FDI increase in Germany? I cannot make a hold how to make use of W. Thanks!