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st: cluster() and robust option

From   Kit Baum <>
Subject   st: cluster() and robust option
Date   Tue, 16 Aug 2005 08:23:03 -0400

Federico says

I am working with a cross-national data set. It includes observations for 20 developed countries in 1990. Since these countries are not randomly sampled, I thought to use the reg option cluster(country). In fact it specifies that the observations are not independent within groups
Is this a reasonable solution in this case?

If so, why do I obtain the same result by using robust option?
I wonder if robust standard errors are the statistical remedy both for no independent observations and heteroskedasticity?
So, what is the relationship between heteroschedasticity and no indipendent observations?
I ask thesw questions because I didn't find any answers on STATA manuals.

If you have only those 20 observations, robust and cluster(country) mean the same thing. The group of observations corresponding to the country is allowed to have a covariance matrix incorporating intra- country correlation, and the diagonal of that matrix is country- specific. But if you have only one obs. per country that matrix is a scalar with value equal to the "robust" (sandwich/Huber/White) variance estimator.

Cluster standard errors would make a difference if you have multiple observations per country (e.g. a panel). But there are other ways of skinning that cat, e.g. xtgls, xtgee etc.

Kit Baum, Boston College Economics

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