Causal Inference with Groupwise Matching

Abstract

This paper examines methods of causal inference based on groupwise matching when we observe multiple large groups of individuals over several periods. We formulate causal inference validity through a generalized matching condition, generalizing the parallel trend assumption in difference-in-differences designs. We show that difference-in-differences, synthetic control, and synthetic difference-in-differences designs are distinguished by the specific matching conditions that they invoke. Through regret analysis, we demonstrate that difference-in-differences and synthetic control with differencing are complementary; the former dominates the latter if and only if the latter's extrapolation error exceeds the former's matching error up to a term vanishing at the parametric rate. The analysis also reveals that synthetic control with differencing is equivalent to difference-in-differences when the parallel trend assumption holds for both the pre-treatment and post-treatment periods. We develop a statistical inference procedure based on synthetic control with differencing and present an empirical application demonstrating its usefulness.