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Regional Policy Evaluation: Interactive Fixed Effects and Synthetic Controls

Laurent Gobillon1,2; Thierry Magnac3

1 Centre National de la Recherche Scientifique · 2 Paris School of Economics · 3 Toulouse School of Economics

The Review of Economics and Statistics 2016

In this paper, we investigate the use of interactive effect or linear factor models in regional policy evaluation. We contrast treatment effect estimates obtained using Bai (2009) with those obtained using difference in differences and synthetic controls (Abadie and coauthors). We show that difference in differences are generically biased, and we derive support conditions for synthetic controls. We construct Monte Carlo experiments to compare these estimation methods in small samples. As an empirical illustration, we provide an evaluation of the impact on local unemployment of an enterprise zone policy implemented in France in the 1990s.

DOI
10.1162/rest_a_00537
Volume
98 (3)
Pages
535-551
Language
en
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