Shift-Share Designs: Theory and Inference / Rodrigo Adão, Michal Kolesár, Eduardo Morales.

Format:

Book

Author/Creator:

Adão, Rodrigo.

Contributor:

National Bureau of Economic Research.

Kolesár, Michal.

Morales, Eduardo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24944.

NBER working paper series no. w24944

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Shift-Share Designs

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

We study inference in shift-share regression designs, such as when a regional outcome is regressed on a weighted average of observed sectoral shocks, using regional sector shares as weights. We conduct a placebo exercise in which we estimate the effect of a shift-share regressor constructed with randomly generated sectoral shocks on actual labor market outcomes across U.S. Commuting Zones. Tests based on commonly used standard errors with 5% nominal significance level reject the null of no effect in up to 55% of the placebo samples. We use a stylized economic model to show that this overrejection problem arises because regression residuals are correlated across regions with similar sectoral shares, independently of their geographic location. We derive novel inference methods that are valid under arbitrary cross-regional correlation in the regression residuals. We show that our methods yield substantially wider confidence intervals in popular applications of shift-share regression designs.

Notes:

Print version record

August 2018.