IDEAS home Printed from https://ideas.repec.org/p/tse/wpaper/127362.html
   My bibliography  Save this paper

Robustness of Two-Way Fixed Effects Estimators to Heterogeneous Treatment Effects

Author

Listed:
  • Fabre, Anaïs

Abstract

This paper provides necessary and sufficient conditions for the Two-Way Fixed Effects (TWFE) estimator to be robust to heterogeneous treatment effects. I decompose the TWFE estimator to show that it is a weighted sum of five different types of two-by-two comparisons, with positive weights. I show that parallel trends assumptions on either the untreated or treated potential outcomes must hold for each comparison to identify the Average Treatment Effect (ATE) of the group switching treatment status, when the effect of the treatment is contemporaneous. Both parallel trends assumptions are thus necessary and sufficient for the TWFE estimator to weigh each ATE positively, when allowing treatment effects to be heterogeneous across groups and periods. I further provide sufficient conditions under which the TWFE estimator remains valid even in the presence of dynamic treatment effects. Finally, I show how to exploit all available comparisons to build unbiased estimators of the ATT and ATE.

Suggested Citation

  • Fabre, Anaïs, 2022. "Robustness of Two-Way Fixed Effects Estimators to Heterogeneous Treatment Effects," TSE Working Papers 22-1362, Toulouse School of Economics (TSE), revised Jun 2023.
    • Handle: RePEc:tse:wpaper:127362
    as

    Download full text from publisher

    File URL: https://www.tse-fr.eu/sites/default/files/TSE/documents/doc/wp/2022/wp_tse_1362.pdf
    File Function: Full Text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Clément de Chaisemartin & Xavier D'Haultfœuille, 2020. "Two-Way Fixed Effects Estimators with Heterogeneous Treatment Effects," American Economic Review, American Economic Association, vol. 110(9), pages 2964-2996, September.
    2. Rossi, Pauline & Villar, Paola, 2020. "Private health investments under competing risks: Evidence from malaria control in Senegal," Journal of Health Economics, Elsevier, vol. 73(C).
    3. Brantly Callaway & Andrew Goodman-Bacon & Pedro H. C. Sant'Anna, 2021. "Difference-in-Differences with a Continuous Treatment," Papers 2107.02637, arXiv.org, revised Jan 2024.
    4. Kirill Borusyak & Xavier Jaravel & Jann Spiess, 2024. "Revisiting Event-Study Designs: Robust and Efficient Estimation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(6), pages 3253-3285.
    5. Kimin Kim & Myoung-jae Lee, 2019. "Difference in differences in reverse," Empirical Economics, Springer, vol. 57(3), pages 705-725, September.
    6. Goodman-Bacon, Andrew, 2021. "Difference-in-differences with variation in treatment timing," Journal of Econometrics, Elsevier, vol. 225(2), pages 254-277.
    7. 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.
    8. Chabé-Ferret, Sylvain & Voia, Anca, 2019. "Are Grassland Conservation Programs a Cost-Effective Way to Fight Climate Change? Evidence from France," SocArXiv cx8j6, Center for Open Science.
    9. Jonathan Roth, 2022. "Pretest with Caution: Event-Study Estimates after Testing for Parallel Trends," American Economic Review: Insights, American Economic Association, vol. 4(3), pages 305-322, September.
    10. 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.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gregory Faletto, 2023. "Fused Extended Two-Way Fixed Effects for Difference-in-Differences With Staggered Adoptions," Papers 2312.05985, arXiv.org, revised Oct 2024.
    2. Mark Kattenberg & Bas Scheer & Jurre Thiel, 2023. "Causal forests with fixed effects for treatment effect heterogeneity in difference-in-differences," CPB Discussion Paper 452, CPB Netherlands Bureau for Economic Policy Analysis.
    3. 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.
    4. Clément de Chaisemartin & Xavier D’Haultfœuille, 2023. "Two-way fixed effects and differences-in-differences with heterogeneous treatment effects: a survey," The Econometrics Journal, Royal Economic Society, vol. 26(3), pages 1-30.
    5. Kamila Cygan-Rehm, 2022. "Lifetime Consequences of Lost Instructional Time in the Classroom: Evidence from Shortened School Years," CESifo Working Paper Series 9892, CESifo.
    6. Kihwan Bae & Edward Timmons, 2023. "Now You Can Take It with You: Effects of Occupational Credential Recognition on Labor Market Outcomes," Working Papers 23-03, Department of Economics, West Virginia University.
    7. Rüttenauer, Tobias & Kapelle, Nicole, 2024. "Panel Data Analysis," SocArXiv 3mfzq, Center for Open Science.
    8. Nikhil Datta & Stephen Machin, 2024. "Government contracting and living wages > minimum wages," CEP Discussion Papers dp2000, Centre for Economic Performance, LSE.
    9. 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.
    10. Li, Daiyue & Jin, Yanhong & Cheng, Mingwang, 2024. "Unleashing the power of industrial robotics on firm productivity: Evidence from China," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 500-520.
    11. Huang, Wei & Luo, Mi & Ta, Yuqi & Wang, Boxian, 2024. "Land expropriation, household behaviors, and health outcomes: Evidence from China," Journal of Development Economics, Elsevier, vol. 171(C).
    12. Hans-Bernd Schaefer & Rok Spruk, 2024. "Islamic Law, Western European Law and the Roots of Middle East's Long Divergence: a Comparative Empirical Investigation (800-1600)," Papers 2401.14435, arXiv.org, revised Mar 2024.
    13. Hoyos, Mateo, 2024. "Tariffs and Growth: Heterogeneity by Economic Structure," SocArXiv v75aw, Center for Open Science.
    14. Simon Freyaldenhoven & Christian B. Hansen & Jorge Pérez Pérez & Jesse M. Shapiro & Constantino Carreto, 2024. "Policy Effect Estimation and Visualization in Linear Panel Event-Study Designs: Introducing the xtevent Package," Working Papers 2024-09, Banco de México.
    15. Melnik, Walter & Smyth, Andrew, 2024. "R&D tax credits and innovation," Journal of Public Economics, Elsevier, vol. 236(C).
    16. Dami'an Vergara, 2022. "Minimum Wages and Optimal Redistribution," Papers 2202.00839, arXiv.org, revised Dec 2022.
    17. Qiu, Huanguang & Hong, Junqiao & Wang, Xiangrui & Filipski, Mateusz, 2024. "Home sweet home: Impacts of living conditions on worker migration with evidence from randomized resettlement in China," Journal of Economic Behavior & Organization, Elsevier, vol. 220(C), pages 558-583.
    18. Wang, Zhen & Chu, Erming, 2024. "The path toward urban carbon neutrality: How does the low-carbon city pilot policy stimulate low-carbon technology?," Economic Analysis and Policy, Elsevier, vol. 82(C), pages 954-975.
    19. Joop Age Harm Adema & Cevat Giray Aksoy & Panu Poutvaara, 2021. "Mobile Internet Access and the Desire to Emigrate," ifo Working Paper Series 365, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    20. Hasager, Linea, 2024. "Does granting refugee status to family-reunified women improve their integration?," Journal of Public Economics, Elsevier, vol. 234(C).

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tse:wpaper:127362. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/tsetofr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.