synth2: Synthetic control method with placebo tests,robustness test,and visualization

Abstract

The synthetic control method (Abadie and Gardeazabal, 2003, American Economic Review 93: 113–132, Abadie, Diamond, and Hainmueller, 2010, Journal of the American Statistical Association 105: 493–505) is a popular method for causal inference in panel data with one treated unit that often uses placebo tests for statistical inference. While the synthetic control method can be implemented by the excellent command synth (Abadie, Diamond, and Hainmueller, 2011, Statistical Software Components S457334, Department of Economics, Boston College), it is still inconvenient for users to conduct placebo tests. As a wrapper program for synth, our proposed synth2 command provides convenient utilities to automate both in-space and in-time placebo tests, as well as the leave-one-out robustness test. Moreover, synth2 produces a complete set of graphs to visualize covariate or unit weights, covariate balance, actual or predicted outcomes, treatment effects, placebo tests, ratio of posttreatment mean squared prediction error to pretreatment mean squared prediction error, pointwise p-values (two-sided, right-sided, and left-sided), and the leave-one-out robustness test. We illustrate the use of the synth2 command by revisiting the classic example of California’s tobacco control program (Abadie, Diamond, and Hainmueller 2010).