Research Guides: DID in R: Differences-in-Differences R tutorial

Concept heads up

Difference in Difference method compares not the outcomes Y but the change in the outcomes pre- and posttreatment. This is a quasi-experiment approach.

R coding tutorial

Getting sample data.

library(foreign)
mydata <- read.dta("https://dss.princeton.edu/training/Panel101.dta")

Create a dummy variable to indicate the time when the treatment started. Lets assume that treatment started in 1994. In this case, years before 1994 will have a value of 0 and 1994+ a 1. If you already have this skip this step.

mydata$time=ifelse(mydata$year>=1994,1,0)

Create a dummy variable to identify the group exposed to the treatment. In this example lets assumed that countries with code 5,6, and 7 were treated (=1). Countries 1-4 were not treated (=0). If you already have this skip this step.

mydata$treated = ifelse(mydata$country == "E" | mydata$country == "F" | mydata$country == "G", 1, 0)

Create an interaction between time and treated. We will call this interaction ‘did’.

mydata$did = mydata$time * mydata$treated

Estimating the DID estimator (method 1: generate the interaction)

didreg = lm(y ~ treated + time + did, data = mydata)
summary(didreg)

Call:
lm(formula = y ~ treated + time + did, data = mydata)

Residuals:
       Min         1Q     Median         3Q        Max 
-9.768e+09 -1.623e+09  1.167e+08  1.393e+09  6.807e+09 

Coefficients:
              Estimate Std. Error t value Pr(>|t|)  
(Intercept)  3.581e+08  7.382e+08   0.485   0.6292  
treated      1.776e+09  1.128e+09   1.575   0.1200  
time         2.289e+09  9.530e+08   2.402   0.0191 *
did         -2.520e+09  1.456e+09  -1.731   0.0882 .
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 2.953e+09 on 66 degrees of freedom
Multiple R-squared:  0.08273,	Adjusted R-squared:  0.04104 
F-statistic: 1.984 on 3 and 66 DF,  p-value: 0.1249

The coefficient for ‘did’ is the differences-in-differences estimator. The effect is significant at 10% with the treatment having a negative effect.

Estimating the DID estimator (method 2: using the multiplication)

didreg1 = lm(y ~ treated*time, data = mydata)
summary(didreg1)

Call:
lm(formula = y ~ treated * time, data = mydata)

Residuals:
       Min         1Q     Median         3Q        Max 
-9.768e+09 -1.623e+09  1.167e+08  1.393e+09  6.807e+09 

Coefficients:
               Estimate Std. Error t value Pr(>|t|)  
(Intercept)   3.581e+08  7.382e+08   0.485   0.6292  
treated       1.776e+09  1.128e+09   1.575   0.1200  
time          2.289e+09  9.530e+08   2.402   0.0191 *
treated:time -2.520e+09  1.456e+09  -1.731   0.0882 .
---
Signif. codes:  0 ‘***’ 0.001 ‘**’ 0.01 ‘*’ 0.05 ‘.’ 0.1 ‘ ’ 1

Residual standard error: 2.953e+09 on 66 degrees of freedom
Multiple R-squared:  0.08273,	Adjusted R-squared:  0.04104 
F-statistic: 1.984 on 3 and 66 DF,  p-value: 0.1249

The coefficient for ‘treated*time’ is the differences-indifferences estimator (‘did’ in the previous example). The effect is significant at 10% with the treatment having a negative effect.

Reference list

Stock, J. H., & Watson, M. W. (2019). Introduction to econometrics. Pearson Education Limited.
Wooldridge, J. (2007). What’s new in econometrics? Lecture 10 difference-in-differences estimation. NBER Summer Institute, available at: https://www.nber.org/sites/default/files/2021-03/slides_10_diffindiffs.pdf, accessed August, 8(2022)
Waldinger, F. (n.d.). Lecture 3: Differences-in-Differences. Available ate: https://silo.tips/download/lecture-3-differences-in-differences, accessed August, 10(2022).