Causal Mediation Analysis in Economics: objectives, assumptions, models

The aim of mediation analysis is to identify and evaluate the mechanisms through which a treatment affects an outcome. The goal is to disentangle the total treatment effect into two components: the indirect effect that operates through one or more intermediate variables, called mediators, and the direct effect that captures the other mechanisms. This paper reviews the methodological advancements in causal mediation literature in economics, in particular focusing on quasi-experimental designs. It defines the parameters of interest under the counterfactual approach, the assumptions and the identification strategies, presenting the Instrumental Variables (IV), Difference-in-Differences (DID) and the Synthetic Control (SC) methods.