Identify More, Observe Less: Mediation Analysis Synthetic Control

Mellace GiovanniPasquini Alessandra
CEIS Research Paper
The synthetic control method (SCM) allows estimation of the causal effect of an intervention in settings where panel data on just a few treated units and control units are available. We show that the existing SCM as well as its extensions can be easily modified to estimate how much of the “total” effect goes through observed causal channels. The additional assumptions needed are arguably very mild in many settings. Furthermore, in an illustrative empirical application we estimate the effects of adopting the euro on labor productivity in several countries and show that a reduction in the Economic Complexity Index helped to mitigate the negative short run effects of adopting the new currency in some countries and boosted the positive effects in others.

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Number: 474
Keywords: MASC, Synthetic Control Method, Mediation Analysis, Causal Channels, Causal Mechanisms, Direct and Indirect Effects.
JEL codes: C21,C23,C31,C33
Volume: 17
Issue: 9
Date: Thursday, November 21, 2019
Revision Date: Thursday, November 21, 2019