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Title: Regional Policy Evaluation: Interactive Fixed Effects and Synthetic Controls

Author(s): Laurent Gobillon and Thierry Magnac

Publication Date: November 2014

Keyword(s): economic geography, enterprise zones, linear factor models, policy evaluation and synthetic controls

Programme Area(s): International Trade and Regional Economics and Public Economics

Abstract: In this paper, we investigate the use of interactive effect or linear factor models in regional policy evaluation. We contrast treatment effect estimates obtained by Bai (2009)'s least squares method with the popular difference in differences estimates as well as with estimates obtained using synthetic control approaches as developed by Abadie and coauthors. We show that difference in differences are generically biased and we derive the support conditions that are required for the application of synthetic controls. We construct an extensive set of Monte Carlo experiments to compare the performance of these estimation methods in small samples. As an empirical illustration, we also apply them to the evaluation of the impact on local unemployment of an enterprise zone policy implemented in France in the 1990s.

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Bibliographic Reference

Gobillon, L and Magnac, T. 2014. 'Regional Policy Evaluation: Interactive Fixed Effects and Synthetic Controls'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=10253