Identify More, Observe Less: Mediation Analysis Synthetic Control

09/26/2019

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by   Giovanni Mellace, et al.

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The Synthetic Control Method (SCM) allows estimating the causal effect of an intervention in settings where panel data on just few treated, and control units are available. In this paper, 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 mitigating the negative short run effects of adopting the new currency in some countries or boosted the positive effects in others.