The synthetic control method was invented to measure the GDP cost of Basque terrorism, finding a ~10-percentage-point per-capita gap

The synthetic control method — now a workhorse of applied econometrics — originated in conflict economics, not in the labor or policy domains where it is most cited today. Alberto Abadie and Javier Gardeazabal introduced it in The Economic Costs of Conflict: A Case Study of the Basque Country (American Economic Review, 2003) to isolate the growth cost of ETA terrorism. They report that "after the outbreak of terrorism in the late 1960's, per capita GDP in the Basque Country declined about 10 percentage points relative to a synthetic control region without terrorism."

The mechanism is a constructed counterfactual: rather than pick a single comparison region, the method builds a weighted composite of untreated regions whose pre-event trajectory matches the treated region's, then treats that composite as the "no-terrorism" Basque Country. The same paper used the 1998–99 ETA truce as a second natural experiment, observing a partial reversal of the gap.

The method's later spread is the reason this capture exists: Giovanni Peri and Vasil Yasenov transplanted the same machinery into immigration economics to re-referee the Mariel Boatlift wage debate, building a defensible synthetic comparison for 1980s Miami. A tool built to measure the cost of political violence thus became an arbiter in a labor-economics fight two decades later — the kind of natural-experiment method whose credibility revolution is recognized in claim-card-2021-nobel-natural-experiments-labour-economics.