st: Difference-in-difference, serial correlation, and robust standard errors

[Glenn Landers <landers.glenn@gmail.com>]

I am a novice. I am using StataIC V11.

Does the robust option correct for serial correlation as well as
heteroskedasticity? Wooldridge seems to say so in his Introductory
Econometrics 4th ed. text (although his comment is specific to robust
standard errors and not specifically Stata), and I have seen a few
references here.

I am running an OLS difference in difference. I am testing state and county
laws at the county level with quarterly data for three years for each
state/county. I have 17 states, 840 counties, and 12 periods per county =
10,800 observations. I am trying to be conscious of serial correlation, as
Bertrand et al (2000) as well as others point out, but I am also aware my
data seem to fit the case Bertrand describes where laws are not all
implemented at the same time, and the serial correlation problem goes away.
My data range from 2002 to 2009, but I have three years for each
state/county, so the laws are implemented at varying times across those
eight years. Still, I would like to run a test for serial correlation just
to be sure.

Colleagues have suggested xtreg, and I have implemented that and xtserial,
but it seems in arraying the 840 counties in panels of 12 periods each
(1-12) and bringing the implementation dates of the laws more into
alignment, I am imposing the serial correlation problem on the data that I
am trying to test for. In fact, the data demonstrate serial correlation
when implementing xtserial.

I know the data are heteroskedastic. Does implementing the the robust
option also correct for any serial correlation that might be present, short
of having a test for serial correlation that does not implementing xtreg or
xtserial?

Thank you.
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