Testing Parallel Trends in Differences-in-Differences and Event Study Designs: A Research Approach Based on Pre-Treatment Period Significance

Article DOI: https://doi.org/10.57017/jorit.v2.2(4).07

Author(s):

John Michael RIVEROS-GAVILANES Faculty of Administration and Economics, Universidad Colegio Mayor de Cundinamarca, Colombia

Abstract:

Traditional tests for parallel trends in the context of differences-in-differences are based on the observation of the mean values of the dependent variable in the treatment and control groups over time. However, given the new discussions brought by the development of the event study designs, controlling for observable factors may intervene in the fulfilment of the parallel trend assumption. This article presents a simple test based on the statistical significance of pre-treatment periods which can be extended from the classic Differences-in-Differences up to event study designs in universal absorbing treatments. The test requires at least two pre-treatment periods and can done by constructing appropriate dummy variables.

© 2023 The Author(s). Published by RITHA Publishing. This article is distributed under the terms of the license CC-BY 4.0., which permits any further distribution in any medium, provided the original work is properly cited.

How to cite:

Riveros-Gavilanes, J. M. (2023). Testing Parallel Trends in Differences-in-Differences and Event Study Designs: A Research Approach Based on Pre-Treatment Period Significance. Journal of Research, Innovation and Technologies , Volume II, 2(4), 226-237. https://doi.org/10.57017/jorit.v2.2(4).07

Article’s history:

Received: 7th of November, 2023; Revised: 27th of November, 2023; Accepted for publication: 11th of December, 2023; Available online: 14th of December, 2023. Published as article in Volume II, Issue 2(4)

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