Instrumental Variables and Causal Mechanisms: Unpacking the Effect of Trade on Workers and Voters

80 Pages Posted: 22 Mar 2017

See all articles by Christian Dippel

Christian Dippel

University of California, Los Angeles (UCLA) - Anderson School of Management

Robert Gold

Kiel Institute for the World Economy

Stephan Heblich

University of Bristol - Department of Economics

Rodrigo R. Pinto

University of Chicago - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: March 2017

Abstract

Instrumental variables (IV) are a common means to identify treatment effects. But standard IV methods do not allow us to unpack the complex treatment effects that arise when a treatment and its outcome together cause a second outcome of interest. For example, IV methods have been used to show that import exposure to low-wage countries has adversely affected Western labor markets. Similarly, they have been used to show that import exposure has increased voter polarization. However, standard IV cannot estimate to what extent the latter is a consequence of the former. This paper proposes a new identification framework that allows us to do so, appealing to one additional identifying assumption without requiring additional instruments. The added identifying assumption can be relaxed, and bounds instead of point estimates can be derived. Applying this framework, we estimate that labor market adjustments explain most to all of the effect of import exposure on voting, thereby providing rigorous evidence that the correct policy response to voter polarization has to be focused on labor markets.

Suggested Citation

Dippel, Christian and Gold, Robert and Heblich, Stephan and Pinto, Rodrigo R., Instrumental Variables and Causal Mechanisms: Unpacking the Effect of Trade on Workers and Voters (March 2017). NBER Working Paper No. w23209. Available at SSRN: https://ssrn.com/abstract=2938753

Christian Dippel (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Robert Gold

Kiel Institute for the World Economy ( email )

P.O. Box 4309
Kiel, D-24100
Germany

Stephan Heblich

University of Bristol - Department of Economics ( email )

8 Woodland Road
Bristol BS8 ITN
United Kingdom

Rodrigo R. Pinto

University of Chicago - Department of Economics ( email )

1126 East 59th Street
Chicago, IL 60637
United States

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