What are some examples of innovative and impactful applications of the difference in differences method?

1 Education and health

One of the most famous applications of the DID method is the study by Angrist and Lavy (1999) on the effects of class size on student achievement in Israel. They exploited a natural experiment where schools were assigned to have small or large classes based on a maximum class size rule. They found that smaller classes improved test scores, especially for low-income and low-achieving students. Another example is the study by Almond et al. (2009) on the effects of the 1918 influenza pandemic on human capital and health outcomes in the US. They used the variation in exposure to the pandemic across states and cohorts as a source of exogenous variation. They found that the pandemic reduced educational attainment, income, and disability rates for the affected cohorts.

2 Crime and violence

Another field where the DID method has been used to measure causal effects is crime and violence. For instance, Dube et al. (2013) used the DID method to evaluate the impact of the expiration of the Federal Assault Weapons Ban (FAWB) in 2004 on gun-related homicides and suicides in the US. They compared the changes in outcomes between states that had their own assault weapons bans and those that did not, before and after the FAWB expired. They found that the expiration of the FAWB increased gun-related homicides by 19.4% and suicides by 10.4%. Similarly, Abadie and Gardeazabal (2003) used the DID method to estimate the economic costs of terrorism in the Basque Country in Spain. They compared the changes in per capita GDP between the Basque Country and a synthetic control region constructed from other regions in Spain, before and after the onset of terrorist activity. They found that terrorism reduced per capita GDP by 10%.

3 Environment and energy

A third area where the DID method has been applied to address important policy questions is environment and energy. For example, Greenstone and Hanna (2014) used the DID method to assess the effects of environmental regulations on air quality and infant mortality in India. They exploited a policy change that mandated coal-fired power plants to install pollution control devices. They compared the changes in outcomes between districts that were close to or far from the power plants, before and after the policy change. They found that the policy reduced particulate matter emissions by 40% and infant mortality by 15%. Another example is the study by Davis and Kilian (2011) on the effects of oil price shocks on the US economy. They used the DID method to identify exogenous changes in oil prices caused by geopolitical events. They compared the changes in economic indicators between oil-producing and oil-consuming states, before and after the oil price shocks. They found that oil price shocks had asymmetric effects on income, employment, and inflation across states.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?