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Difference-in-Differences Estimation with Spatial Spillovers

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  • Kyle Butts

Abstract

Empirical work often uses treatment assigned following geographic boundaries. When the effects of treatment cross over borders, classical difference-in-differences estimation produces biased estimates for the average treatment effect. In this paper, I introduce a potential outcomes framework to model spillover effects and decompose the estimate's bias in two parts: (1) the control group no longer identifies the counterfactual trend because their outcomes are affected by treatment and (2) changes in treated units' outcomes reflect the effect of their own treatment status and the effect from the treatment status of 'close' units. I propose conditions for non-parametric identification that can remove both sources of bias and semi-parametrically estimate the spillover effects themselves including in settings with staggered treatment timing. To highlight the importance of spillover effects, I revisit analyses of three place-based interventions.

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  • Kyle Butts, 2021. "Difference-in-Differences Estimation with Spatial Spillovers," Papers 2105.03737, arXiv.org, revised Jun 2023.
    • Handle: RePEc:arx:papers:2105.03737
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    8. Robert Minton & Casey B. Mulligan, 2024. "A Market Interpretation of Treatment Effects," NBER Working Papers 33228, National Bureau of Economic Research, Inc.
    9. Markus, Philipp, 2023. "Effects of access to universities on education and migration decisions," Ruhr Economic Papers 996, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    10. Dharmasankar, Sharada & Yoo, Hoyoung, 2023. "Assessing the main and spillover effects of Seattle's minimum wage on establishment decisions," Regional Science and Urban Economics, Elsevier, vol. 99(C).
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    12. Yan, Linnan & Tu, Menger & Chagas, André L.S. & Tai, Lufeng, 2022. "The impact of high-speed railway on labor spatial misallocation—Based on spatial difference-in-differences analysis," Transportation Research Part A: Policy and Practice, Elsevier, vol. 164(C), pages 82-97.
    13. Chakraborty Avinandan & Doremus Jacqueline & Stith Sarah, 2021. "The effects of recreational cannabis access on labor markets: evidence from Colorado," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 10(1), pages 1-86, January.
    14. Jiafeng Chen & Edward Glaeser & David Wessel, 2022. "JUE Insight: The (Non-)Effect of Opportunity Zones on Housing Prices," Papers 2204.06967, arXiv.org.
    15. Reid Taylor & Madeline Turland & Joakim A. Weill, 2025. "Last Resort Insurance: Wildfires and the Regulation of a Crashing Market," Working Papers 2510, Federal Reserve Bank of Dallas.
    16. Marein, Brian, 2023. "Public health departments and the mortality transition in Latin America: Evidence from Puerto Rico," Journal of Development Economics, Elsevier, vol. 160(C).
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    18. Rodger Campos, 2024. "Keep One's Eyes on the Ball: The Impact of Sport Arena on Housing Price," TD NEREUS 11-2024, Núcleo de Economia Regional e Urbana da Universidade de São Paulo (NEREUS).
    19. Butts, Kyle, 2023. "JUE Insight: Difference-in-differences with geocoded microdata," Journal of Urban Economics, Elsevier, vol. 133(C).
    20. Joseph, Iverson-Love, 2022. "The effect of natural disaster on economic growth: Evidence from a major earthquake in Haiti," World Development, Elsevier, vol. 159(C).
    21. Pascal Troxler & Marcus Roller & Monika Bandi Tanner, 2024. "The development of ski areas and its relation to the Alpine economy in Switzerland," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 160(1), pages 1-20, December.
    22. Roth, Jonathan & Sant’Anna, Pedro H.C. & Bilinski, Alyssa & Poe, John, 2023. "What’s trending in difference-in-differences? A synthesis of the recent econometrics literature," Journal of Econometrics, Elsevier, vol. 235(2), pages 2218-2244.

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