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Difference-in-differences with as few as two cross-sectional units -- A new perspective to the democracy-growth debate

Gilles Koumou, Emmanuel Selorm Tsyawo

arXiv 23 Aug 2024 · Econometrics · publishedEconometric Reviews (2026)

arXiv:2408.13047 · PDF · DOI · OpenAlex · Extracted main text

Abstract

Pooled panel analyses often mask heterogeneity in unit-specific treatment effects. This challenge, for example, crops up in studies of the impact of democracy on economic growth, where findings vary substantially due to differences in country composition. To address this challenge, this paper introduces a Difference-in-Differences (DiD) estimator that leverages temporal variation in the data to estimate unit-specific average treatment effects on the treated (ATT) with as few as two cross-sectional units. Under weak identification and temporal dependence conditions, the proposed DiD estimator is shown to be asymptotically normal. The method is further complemented with an identification test that, unlike pre-trends tests, is more powerful and can detect violations of parallel trends in post-treatment periods. Empirical results using the DiD estimator suggest Benin's economy would have been 6.3% smaller on average over the 1993-2018 period had she not democratised.

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Most heavily cited references

The works this paper leans on most, across its whole bibliography — not restricted to papers in our corpus. Ranked by composite intensity, which combines how often a work is mentioned, how many sections mention it, and how much of that falls in the main text rather than the appendix.

ReferenceIntensityMentionsSectionsMain text
1Arkhangelsky, Dmitry and Athey, Susan and Hirshberg, David A and Imb… (2021) Synthetic difference-in-differences0.9568588%
2Carvalho, Carlos and Masini, Ricardo and Medeiros, Marcelo C (2018) ArCo: An artificial counterfactual approach for high-dimensional panel time-series data0.9416483%
3Chernozhukov, Victor and Wuthrich, Kaspar and Zhu, Yinchu (2024) A $ t $-test for synthetic controls0.9285380%
4Abadie, Alberto and Gardeazabal, Javier (2003) The economic costs of conflict: A case study of the Basque Country0.8434375%
5Sun, Liyang and Ben-Michael, Eli and Feller, Avi (2023) Using multiple outcomes to improve the synthetic control method0.8435360%
6Marcus, Michelle and Sant’Anna, Pedro HC (2021) The role of parallel trends in event study settings: An application to environmental economics0.84333100%
7Davidson, James (2021) Stochastic Limit Theory: An Introduction for Econometricians0.8229356%
8Ferman, Bruno and Pinto, Cristine (2021) Synthetic controls with imperfect pretreatment fit0.7639444%
9Chan, Marc K and Kwok, Simon S (2021) The PCDID approach: Difference-in-differences when trends are potentially unparallel and stochastic0.7373367%
10Newey, WK and West, KD (1987) A simple, positive semi-definite, heteroskedasticity and autocorrelation consistent covariance matrix0.7373367%

Showing the top 10 of 63 scored citations.