how to correct autocorrelation?

[Kate sharma]

Hi , I am running a pooled ols with country dummies on a panel data set N=2 and T=50 , i am doing this method since stata wont run RE due to insufficient observations and FE does not allow me to do a cross country comparison. However when doing this I have run into the issue of autocorrelation and cant seem to fix it without introducing multicollinearity(VIF>10), by this i mean adding lags of my dependent variable and other variables. How else can I correct this in my situation ? I was contemplating between FGLS or Driscoll-Kraay , however I am unsure which is more appropriate?

[Carlo Lazzaro]

Kate:
welcome to this forum,
The main issue rests on the N=2 cross-sectional dimension of your panel dataset.
This makes your results questionable.
That said, I woudl go DK.

[Jeff Wooldridge]

I agree with Carlo about DK, but I’m not sure what you’re trying to do. Is one country a control for the other treated country? Are you evaluating a policy change or an intervention?