#StackBounty: #difference-in-difference #clustered-standard-errors Whether we need to cluster by country with staggered laws implementa…

Bounty: 50

When trying to find a way of avoiding using clustering, I saw that Abadie, 2017 have a great paper mentioned when we should cluster, summarized by McKenzie here.

I used the paper of Dasgupta,2019 to link to the summarized work of McKenzie. So, in Dasgupta’s paper, he examines the impact of anticollusion laws of firms’ asset growth in a standard Difference-in-Differences (DID) setting with multiple groups and periods. In specific, each country will pass the anticollusion laws in different years, and he examine the impact of such law implementation on firms‘ asset growth.

It seems to me that Dasgupta, 2019 does not need to cluster based on their setting. However, from this comment of @Björn , it seems that at least, Dasgupta need to cluster by countries.

As treatments are applied at the country level, sure clustering at
least at the country level is obvious?

Part of the intuition is that
you cannot tell apart a general country trend (pretty plausible) from
an effect of the treatment. Instead, if within the country the
treatment was applied at different times per different firms you could
tell it apart (and a general country trend could to some extent be
absorbed into the general noise). Or if regulation is applied to
different industries at different times within a country, then
clustering by sector within country could be an alternative

So, it leads to another story here that maybe good for a new question rather than answering in the comment part: So, we must, at least cluster by country in the case above? I do not fully understand the argument.

Get this bounty!!!

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