There are several reasons that y¯ctτ, y¯rtτ, and z¯tτ may be correlated with the error term 𝜖ct. The unobserved determinants of new infections such as local residents’ and government’s preparedness are likely correlated over time, which causes correlations between the error term and the lagged dependent variables. As noted by the World Health Organization (2020b), most cases that were locally generated outside Hubei occurred in households or clusters. The fact that big clusters give rise to a large number of cases within a short period of time may still be compatible with a general low rate of community transmissions, especially when measures such as social distancing are implemented. Therefore, the coefficients are estimated by two-stage least squares in order to obtain consistent estimates on the transmission rates in the population.