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Simple Diagnostics for Two-Way Fixed Effects

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Abstract

Difference-in-differences estimation is a widely used method of program evaluation. When treatment is implemented in different places at different times, researchers often use two-way fixed effects to control for location-specific and period-specific shocks. Such estimates can be severely biased when treatment effects change over time within treated units. I review the sources of this bias and propose several simple diagnostics for assessing its likely severity. I illustrate these tools through a case study of free primary education in Sub-Saharan Africa.

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  • Pamela Jakiela, 2021. "Simple Diagnostics for Two-Way Fixed Effects," Department of Economics Working Papers 2021-05, Department of Economics, Williams College.
    • Handle: RePEc:wil:wileco:2021-05
    DOI: 10.36934/wecon:2021-05
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    1. Andrew Goodman-Bacon, 2018. "Difference-in-Differences with Variation in Treatment Timing," NBER Working Papers 25018, National Bureau of Economic Research, Inc.
    2. Sun, Liyang & Abraham, Sarah, 2021. "Estimating dynamic treatment effects in event studies with heterogeneous treatment effects," Journal of Econometrics, Elsevier, vol. 225(2), pages 175-199.
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    Cited by:

    1. Baker, Andrew C. & Larcker, David F. & Wang, Charles C.Y., 2022. "How much should we trust staggered difference-in-differences estimates?," Journal of Financial Economics, Elsevier, vol. 144(2), pages 370-395.
    2. Cl'ement de Chaisemartin & Xavier D'Haultf{oe}uille, 2021. "Two-Way Fixed Effects and Differences-in-Differences with Heterogeneous Treatment Effects: A Survey," Papers 2112.04565, arXiv.org, revised Jun 2022.
    3. Jonathan Roth & Pedro H. C. Sant'Anna & Alyssa Bilinski & John Poe, 2022. "What's Trending in Difference-in-Differences? A Synthesis of the Recent Econometrics Literature," Papers 2201.01194, arXiv.org, revised Jan 2022.

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    More about this item

    Keywords

    difference-in-differences; program evaluation; heterogeneous treatment effects; World Development Indicators; free primary education;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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