Institutional Affiliation: Massachusetts Institute of Technology
NBER Working Papers and Publications
|March 2018||Bartik Instruments: What, When, Why, and How|
with Paul Goldsmith-Pinkham, Isaac Sorkin: w24408
The Bartik instrument is formed by interacting local industry shares and national industry growth rates. We show that the Bartik instrument is numerically equivalent to using local industry shares as instruments in a GMM estimator and discuss how different asymptotics imply different identifying assumptions. We argue that in most applications the identifying assumption is in terms of industry shares. Finally, we show how to decompose the Bartik instrument into the weighted sum of the just-identified instrumental variables estimators. These weights measure how sensitive the parameter estimate is to each instrument. We illustrate our results through four applications: estimating the inverse elasticity of labor supply, estimating local labor market effects of Chinese imports, estimating the f...