Cited by 631Advanced Causal Inference TechniquesSpatial and Panel Data AnalysisStatistical Methods and Bayesian Inference

The DOI matches its Crossref record; 19 of the 20 references it cites were found in a registry or an index; none of the 3 sources its claims cite is checked for support yet.

On the Use of Two-Way Fixed Effects Regression Models for Causal Inference with Panel Data

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Imai, Kosuke, Kim, In Song·2021·Political Analysis

Abstract

Abstract The two-way linear fixed effects regression ( 2FE ) has become a default method for estimating causal effects from panel data. Many applied researchers use the 2FE estimator to adjust for unobserved unit-specific and time-specific confounders at the same time. Unfortunately, we demonstrate that the ability of the 2FE model to simultaneously adjust for these two types of unobserved confounders critically relies upon the assumption of linear additive effects. Another common justification for the use of the 2FE estimator is based on its equivalence to the difference-in-differences estimator under the simplest setting with two groups and two time periods. We show that this equivalence does not hold under more general settings commonly encountered in applied research. Instead, we prove that the multi-period difference-in-differences estimator is equivalent to the weighted 2FE estimator with some observations having negative weights. These analytical results imply that in contrast to the popular belief, the 2FE estimator does not represent a design-based, nonparametric estimation strategy for causal inference. Instead, its validity fundamentally rests on the modeling assumptions.

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Crossref · 10.1017/pan.2020.33

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  • The paper relies on this without support.

    The two-way FE regression is a default method for estimating causal effects from panel data among applied researchers.

    “The two-way linear fixed effects regression ( FE) has become a default method for estimating causal effects from panel data.”
    “Many social scientists use the two-way fixed effects ( FE) regression, or linear regression with unit and time fixed effects, as the default methodology for estimating causal effects from panel data.”
  • The paper relies on this without support.

    Many applied researchers use the FE estimator to adjust for unobserved unit-specific and time-specific confounders at the same time.

    “Many applied researchers use the FE estimator to adjust for unobserved unit-specific and time-specific confounders at the same time.”
    “Applied researchers o en use the FE regression to adjust for unobserved unit-specific and time-specific confounders at the same time.”
  • The authors state this as an assumption.

    The two types of unobserved confounders (unit-specific and time-specific) are additive and separable, with no interaction between them.

    “Thus, although the interaction between these two types of unobserved confounders is assumed to be absent, there is no functional-form restriction on h(•) and f (•).”
    “In other words, since the treatment is binary, the model makes no restriction other than the additivity and separability of the two types of unobserved confounders.”
  • The authors state this as an assumption.

    The parallel trend assumption holds for the DiD design.

    “To establish the relations between the FE and DiD estimators, we begin by considering the following parallel trend assumption, A (Parallel Trend).”
  • The authors state this as an assumption.

    The treatment varies within each unit as well as within each time period.

    “Assume that the treatment varies within each unit as well as within each time period, that is, 0 < T t =1 X i t < T for each i and 0 < N i =1 X i t < N for each t.”
  • The authors state this as an assumption.

    There is at least one treated and control unit, and at least one unit with D_it = 1.

    “Assume that there is at least one treated and control unit, that is, 0 < N i =1 T t =1 X i t < NT , and that there is at least one unit with D i t = 1, that is, 0 < N i =1 T t =1 D i t .”
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Metadata

Authors
Imai, K., & Kim, I. S.
Affiliations
  • Harvard University (US)
  • Massachusetts Institute of Technology (US)
Corresponding author
Kim, In Song
Venue
Political Analysis
Published
2020-11-12
Volume
29
Issue
3
Pages
405-415
ISSN
  • 1047-1987 (ISSN-L)
  • 1476-4989
OpenAlex
W3098174737
Cited by
623
References
20
Citations by year
2026: 105 · 2025: 142 · 2024: 126 · 2023: 92 · 2022: 68 · 2021: 54 · 2020: 30
FWCI
42.96
Type
journal article
Language
en
Open access
Locations
  • Political Analysis (publishedVersion)
  • RePEc: Research Papers in Economics (submittedVersion)
  • DSpace@MIT (Massachusetts Institute of Technology) (submittedVersion, cc-by-nc-sa)
Topics
  • Physical Sciences › Mathematics › Statistics and Probability › Advanced Causal Inference Techniques
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Spatial and Panel Data Analysis
  • Physical Sciences › Mathematics › Statistics and Probability › Statistical Methods and Bayesian Inference
Keywords
causal inference, panel data, difference-in-differences, unmeasured confounding, negative weights, design-based estimation, model assumptions

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