The Local-Spillover Decomposition of an Aggregate Causal Effect

Timothy Conley, Bill Dupor, Mahdi Ebsim, Jingchao Li and Peter McCrory

Review, 2026

Abstract: This article presents a method to decompose the causal effects of U.S. defense spending on income into a local effect and a spillover effect using panel data. We estimate positive local and spillover multipliers. By construction, the sum provides an estimate of the aggregate multiplier, which is slightly greater than one in our benchmark specification. Using disaggregate data improves precision relative to using aggregate data alone. More generally, we provide a template to conduct inference on local, spillover, and aggregate causal effects in a unified framework.

Keywords: defense spending; local-spillover decomposition; panel data (search for similar items in EconPapers)
JEL-codes: E1 (search for similar items in EconPapers)
Date: 2026
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Working Paper: The Local-Spillover Decomposition of an Aggregate Causal Effect (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:103392

DOI: 10.20955/r.2026.06

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