st: Tricky IV-Problem and how do I correct Standard Errors in the Second Stage?

[Benjamin Niug <benjamin.niug@googlemail.com>]

Hi Stata-users,

Here is background information:

- Dataset: I have a T=2 panel dataset with approximately 5000 observations.

- Sampling: Observations are sampled across different localities (e.g.
20 observation per locality).

- Estimation Goal: I want to run a IV-regression accounting for FE and
clustering at the individual level.

- I am using Stata 11.

Here comes the issue:

The explanatory variable that is endogenous (to be instrumented) takes
on the same values for observations in the same locality. Hence, I
want to run the first stage regression using averages of exogenous
variables per locality as exogenous instrumental variables. Hence,
there would some further level of aggregation in the first stage (with
5000/20=250 observations).

Questions:
1. Is there a Stata command that can estimate this somewhat tricky
Two-Stage Regression? (no Stata command that I am aware of).
2. If I run the first stage regression by hand: How do I correct the
standard errors in the second stage?

Thanks in advance.

Best regards,
Benjamin
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