n?u=RePEc:bdi:wptemi:td_1011_15&r=eff

BPropensity score matching with diff-in-diffDefining Y F DI and Y DOM as the potential outcome of an investing or domesticfirm, respectively, and d as the treatment indicator (investment=1), the effect ofinvesting abroad can be computed as the Average Treatment effect on the Treated:AT T = E(Y F DI − Y DOM |d = 1) = E(Y F DI |d = 1) − E(Y DOM |d = 1),(B.1)that is the effect of investing abroad for the first time on the multinational firms.In principle, the identification of the effects of FDI would require comparingthe evolution of new MNEs, E(Y F DI |d = 1), with the performance of the exactsame company in the event that it had not made the investment E(Y DOM |d = 1).In practice, this option is not viable since we can only observe the outcome ofthose firms that are not investing abroad, E(Y DOM |d = 0). Using the latter as acounterfactual could potentially generates a bias:B(AT T ) = E(Y DOM |d = 1) − E(Y DOM |d = 0).(B.2)Thus, in order to obtain a valid identification of the causal effect throughmatching the conditional mean independence assumption must be verified: conditionalon a set of observable characteristics X, the average performance of thenon-investing company must be equal to that of the MNE had it not investedabroad in time t ∗ :E(Y DOM |X, d = 1) = E(Y DOM |X, d = 0) = E(Y DOM |X),(B.3)in other words, there are a set of observed characteristics X such that outcomes ofdomestic firms are (mean) independent with respect to the treatment indicator.Unfortunately, it is likely that some unobservable variables (excluded fromX) could also affect both the future performance of the firm and the choice of internationalization;the self-selection in the treatment (the acquisition of the MNEstatus) does not only depend on the observable variables included in X (selectionon observables) but also on some unobserved characteristics (selection on unobservables).Following a standard propensity score matching procedure requires assumingno selection on unobservables at all. However, it is possible to combine adifference-in-differences approach (Heckman et al., 1997), which eliminate the fixed53