Econometrica, 91(6), 2023, p.2155-2185 | Ungated version
Access the longer working paper version here for the appendices covering various extensions (titled "Non-Random Exposure to Exogenous Shocks: Theory and Applications", updated Dec 2021)
Read the paper if your treatment or instrument is computed by a formula from multiple sources of variations, only some of which (the "shocks") are as-good-as-random
We show how to leverage the underlying true or natural experiment, purging OVB from non-random exposure to the shocks, while not imposing further assumptions (like parallel trends) that conventional approaches often require
The key requirement is to be explicit about what the natural experiment is: if some shocks exogenously happened, which alternative vectors of shocks could have happened instead, equally likely?
We give many suggestions how shock counterfactuals may be specified, and illustrate the ideas in applications.
The procedure yields corrected standard errors (via randomization inference)
Forthcoming at Review of Economic Studies
Stata commands available via ssc install or from the Github archive:
did_imputation (implements the robust and efficient imputation estimator)
event_plot (makes event study plots for our estimator, alternative robust estimators, and conventional OLS)
A basic R command is available from Kyle Butts here.
This new draft supersedes the 2017 version with Xavier Jaravel.
When using shift-share IVs, one has to take an a priori stand whether shares or shocks are exogenous.
We propose a formal framework for the exogenous shocks view.
This approach has practical implications for choosing controls (especially when shares do not add up to one), computing standard errors, running balance tests, etc.
Our Stata command recasts the shift-share IV regression as an equivalent IV regression at the level of exogenous shocks, helping to get correct SE, F-stats, and tests.
Stata command: ssaggregate, available from ssc
R command: ssaggregate (by Kyle F. Butts)
Replication archive: https://github.com/borusyak/shift-share
Design-Based Identification with Formula Instruments: A Review (with Peter Hull and Xavier Jaravel, October 2023, Forthcoming at the Econometrics Journal)
We review the econometric insights from the recent literature on design-based identification with formula instruments, such as linear and nonlinear shift-share instruments.
Forthcoming at AEA Papers & Proceedings)
Shows the key role of design-based specifications (which control for the expectation of the treatment or instrument) not only to avoid OVB but also to avoid sign reversals due to negative weights
The Role of Schools in Transmission of the SARS-CoV-2 Virus: Quasi-Experimental Evidence from Germany (with Clara von Bismarck-Osten and Uta Schönberg)
Economic Policy, 37(109), 2022, p. 87-130 [Replication archive]
Are Trade Wars Class Wars? The Importance of Trade-Induced Horizontal Inequality (with Xavier Jaravel, April 2023, IFS Working Paper 22/34, Conditionally accepted at Journal of International Economics)
Welfare effects of trade shocks are linked to the labor market and consumption exposures of agents
On the labor market side, exposure to trade and therefore the welfare effects of trade shocks vary within, but not across, groups of U.S. workers with similar earnings.
Trade can generate winners and losers but not have substantial effects on the shape of the income distribution
This paper supersedes one part of our draft "The Distributional Effects of Trade: Theory and Evidence from the United States", which concerns the labor market effects of trade in general equilibrium.
The Distributional Effects of Trade: Theory and Evidence from the United States (with Xavier Jaravel, May 2021, Revisions requested from Econometrica)
All income and education groups in the U.S. have very similar % of expenditure on imports, overall or with specific trade partners.
Therefore they gain equal purchasing power from small trade shocks , in contrast to a common view that the poor benefit more.
Note: The labor market effects of trade shocks are now in a separate manuscript, "Are Trade Wars Class Wars? The Importance of Trade-Induced Horizontal Inequality")
NBER Working Paper 28957: https://www.nber.org/papers/w28957
[Presentation video from the NBER ITI meeting (60 min)]
Regressions of local population changes on exogenous local labor demand shocks may reveal little about the local responsiveness of internal migration to those shocks.
Work in Progress
Design-Based Estimation of Structural Parameters, with an Application to Demand (with Peter Hull)
Regression Discontinuity Aggregation, with an Application to the Union Effects on Inequality (with Matan Kolerman-Shemer)
Projections on Observables in Two-Way Fixed Effect Models with Limited Mobility (with Martin Weidner)
RIETI Discussion Paper 16-E-001