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st: xtreg, fe and clustered standard errors at the aggregate level.

From   natasha agarwal <>
Subject   st: xtreg, fe and clustered standard errors at the aggregate level.
Date   Fri, 2 Jul 2010 09:35:33 +0100

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 and estimate the same
using a within estimator.

I cluster the standard errors at the regional level. However the
number of regions in the dataset is 30. However I have been reading
that the Stata cluster command developed by Liang and Zeger (1986)
takes care of correcting the standard errors using a robust covariance
estimator even when the cluster size is 10.

In this regard I wanted to know whether the xtreg, fe vce(cluster
region) adjusts the standard errors based on the formula developed by
Liang and Zeger (1986).

Liang and Zeger (1986), Longitudinal Data Analysis Using Generalized
Linear Models, Biometrika, Vol. 73, No. 1. (Apr., 1986), pp. 13-22.

Many thanks
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