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Causal Panel Analysis under Parallel Trends: Lessons from A Large Reanalysis Study

Author

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  • Albert Chiu
  • Xingchen Lan
  • Ziyi Liu
  • Yiqing Xu

Abstract

Two-way fixed effects (TWFE) models are widely used in political science to establish causality, but recent methodological discussions highlight their limitations under heterogeneous treatment effects (HTE) and violations of the parallel trends (PT) assumption. This growing literature has introduced new estimators and diagnostics, causing confusion among researchers about the reliability of existing results and best practices. To address these concerns, we replicated and reanalyzed 49 articles from leading journals using TWFE models for observational panel data with binary treatments. Using six HTE-robust estimators, diagnostic tests, and sensitivity analyses, we find: (i) HTE-robust estimators yield qualitatively similar but highly variable results; (ii) while a few studies show clear signs of PT violations, many lack evidence to support this assumption; and (iii) many studies are underpowered when accounting for HTE and potential PT violations. We emphasize the importance of strong research designs and rigorous validation of key identifying assumptions.

Suggested Citation

  • Albert Chiu & Xingchen Lan & Ziyi Liu & Yiqing Xu, 2023. "Causal Panel Analysis under Parallel Trends: Lessons from A Large Reanalysis Study," Papers 2309.15983, arXiv.org, revised Nov 2024.
  • Handle: RePEc:arx:papers:2309.15983
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    References listed on IDEAS

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    Cited by:

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    2. Weiss, Amanda, 2024. "How Much Should We Trust Modern Difference-in-Differences Estimates?," OSF Preprints bqmws, Center for Open Science.
    3. Bogatyrev, Konstantin & Stoetzer, Lukas, 2024. "Synthetic Control Methods for Proportions," OSF Preprints brhd3, Center for Open Science.
    4. Ulbing, Philipp, 2024. "The Zero Lower Bound on Household Deposit Rates: Not As Binding As We Thought," VfS Annual Conference 2024 (Berlin): Upcoming Labor Market Challenges 302353, Verein für Socialpolitik / German Economic Association.
    5. Rüttenauer, Tobias & Kapelle, Nicole, 2024. "Panel Data Analysis," SocArXiv 3mfzq, Center for Open Science.
    6. Tobias Ruttenauer & Ozan Aksoy, 2024. "When Can We Use Two-Way Fixed-Effects (TWFE): A Comparison of TWFE and Novel Dynamic Difference-in-Differences Estimators," Papers 2402.09928, arXiv.org, revised Apr 2024.
    7. Dmitry Arkhangelsky & Guido Imbens, 2023. "Causal Models for Longitudinal and Panel Data: A Survey," Papers 2311.15458, arXiv.org, revised Jun 2024.

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