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Re: st: Clustering of Standard Errors in a fixed effect model.


From   natasha agarwal <agarwana2@googlemail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Clustering of Standard Errors in a fixed effect model.
Date   Mon, 21 Jun 2010 13:40:00 +0100

On Mon, Jun 21, 2010 at 1:34 PM, Austin Nichols <austinnichols@gmail.com> wrote:
> natasha agarwal <agarwana2@googlemail.com> :
> The number of clusters and how balanced they are determine the
> tradeoff--see e.g. http://www.stata.com/meeting/13uk/nichols_crse.pdf
> and refs therein, and for the follow-up see
> http://www.stata.com/meeting/boston10/abstracts.html#baum

Thanks Austin. I have read this paper.

On this note, does it mean that if I have 30 clusters with a very
unbalanced cluster size like one cluster size being 2000 observations
and the other say 30 observations will give me inconsistent results?




> On Mon, Jun 21, 2010 at 7:22 AM, natasha agarwal
> <agarwana2@googlemail.com> wrote:
>> Dear Everyone,
>>
>> I am trying to estimate an augmented production function where am
>> attempting to measure the effect of aggregate variable (FDI in a
>> region) on micro units (productivity of domestic firms). I use an
>> unbalanced panel data which spans for 5 years.
>>
>> According to Moultan (1986) paper titled "An illustration of a pitfall
>> in estimating the effects of aggregate variables on micro units", it
>> mentions that is is essential to cluster at the aggregate level when
>> an aggregate regressor is specified in the right-hand side.
>>
>> However, Woolridge 2002 in his book Cross-Section and Panel Data
>> mentions that clustering at the aggregate level when the number of
>> groups is less than the group size might not be correct.
>>
>> I was wondering, if anyone could explain me what happens if one tries
>> to cluster at the aggregate level in a fixed effect model when the
>> group size (cluster size) is greater than number of groups (number of
>> clusters)?
>>
>> Thanks
>> Natasha
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