The Need for Equivalence Testing in Economics

Equivalence testing can provide statistically significant evidence that economic relationships are practically negligible. I demonstrate its necessity in a large-scale reanalysis of estimates defending 135 null claims made in 81 recent articles from top economics journals. 36-63% of estimates defending the average null claim fail lenient equivalence tests. In a prediction platform survey, researchers accurately predict that equivalence testing failure rates will significantly exceed levels which they deem acceptable. Obtaining equivalence testing failure rates that these researchers deem acceptable requires arguing that nearly 75% of published estimates in economics are practically equal to zero. These results imply that Type II error rates are unacceptably high throughout economics, and that many null findings in economics reflect low power rather than truly negligible relationships. I provide economists with guidelines and commands in Stata and R for conducting credible equivalence testing and practical significance testing in future research.