Causal Panel Analysis under Parallel Trends: Lessons from A Large Reanalysis Study

Albert Chiu, Xingchen Lan, Ziyi Liu and Yiqing Xu

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Abstract: Two-way fixed effects (TWFE) models are widely used in political science to establish causality, but recent methodological discussions highlight their limitations under heterogeneous treatment effects (HTE) and violations of the parallel trends (PT) assumption. This growing literature has introduced numerous new estimators and procedures, causing confusion among researchers about the reliability of existing results and best practices. To address these concerns, we replicated and reanalyzed 49 studies from leading journals using TWFE models for observational panel data with binary treatments. Using six HTE-robust estimators, diagnostic tests, and sensitivity analyses, we find: (i) HTE-robust estimators yield qualitatively similar but highly variable results; (ii) while a few studies show clear signs of PT violations, many lack evidence to support this assumption; and (iii) many studies are underpowered when accounting for HTE and potential PT violations. We emphasize the importance of strong research designs and rigorous validation of key identifying assumptions.

Date: 2023-09, Revised 2025-03
New Economics Papers: this item is included in nep-dcm and nep-ecm
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