imprint:
Cambridge, Mass: National Bureau of Economic Research, 2018
Published in:NBER working paper series ; no. w24944
Extent:
1 Online-Ressource; illustrations (black and white)
Language:
English
DOI:
10.3386/w24944
Identifier:
Reproduction note:
Hardcopy version available to institutional subscribers
Origination:
Footnote:
System requirements: Adobe [Acrobat] Reader required for PDF files
Mode of access: World Wide Web
Description:
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