Hi,

I 'd like to get some expert advice on how to correct for

heteroskedasticity in panel data.

I have a perfectly balanced panel with N=32 group and each of them have

T=15 time period. I have to use random effect model , as most of my

independent variables are not changing within the paneI.

(I am using stata 11, student version. )

I followed the heteroskedasticity test described in the FAQ using xtgls

(

http://www.stata.com/support/faqs/stat/panel.html ) .

The following test I have done:

xtgls depvar indvars, igls panels(heteroskedastic)

estimates store hetero

xtgls depvar indvars

local df = e(N_g) - 1

lrtest hetero . , df(`df')

result:

"Likelihood-ratio test LR chi2(31) =

322.61

(Assumption: . nested in hetero3) Prob > chi2 =

0.0000"

So I clearly have a heteroskedasticity problem. (I have tested , no

sign of autocorrelation)

Based on what I know, I have 2 options:

Option1: I can use the white robust standard error to correct

heteroskedasticity based on the manual

Xtreg depvar indvars, vce(robust)

Option2: Or I can use the xtgls, since the LR test supported this

version:

xtgls depvar indvars, igls panels(heteroskedastic)

My problem is that significance of some of my independent variables are

different under the 2 options. One of my most important variable(a

dummy) is significant under the second option, but not under the first

one. I do not know which one is the "true" value. Anybody can offer me

some advice?

Thanks

Orsolya Perger

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