I have a cross-sectional dataset at the firm level, and my interest variable (RHS) is a country-level variable. The response variable (LHS) is firm performance (about 1000 firms in 50 countries). It seems I have to cluster the standard errors at the country-level. My question is whether there is no problem if the number of observations per cluster vary significantly? In other words, since I have some countries with only one firm and some other countries with more than 200 firms then can I still cluster at the country-level? Or, I must cluster at the bank-level (which is equivalent to robust standard errors, because of pure cross-section)?
Thank you,