An empirical comparison between a regression framework and the Synthetic Control Method

Abstract

The Synthetic Control Method has been used in comparative case studies in which the existence of a counterfactual unit with a high level of similarities and comparability is crucial. On the other hand, while many methods have been developed to enhance our estimation power, not many studies have explored the prediction power of the traditional regression frameworks in such comparative case studies. In this paper, we empirically compare the Synthetic Control Method with a Dynamic Panel Data Regression Framework. We compare the estimation result and the prediction power of the predicted unit driven from the Dynamic Panel Data model and the counterfactual unit from the SCM. To apply the idea, we employ the recent sanctions on Iran as a suitable case of policy intervention and a comparative case study.