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Panel Data Modelling of Innovation and Flexible Working Arrangements
The Analytical Services Unit (ASU) has been undertaking an analysis of the relationship between innovation and flexible working arrangements, as part of a bigger project that looks into the various panel data analyses that can be undertaken using the Business Longitudinal Database (BLD). In particular, the analysis makes use of firm-level data from three waves of the BLD, namely the 2007-08, 2008-09, and 2009-10 waves, and focuses on small- and medium-sized enterprises. It examines the effects of flexible working arrangements on innovation, while controlling for the effects of other factors including competition, ICT intensity, collaboration, and skill shortages.
ASU is testing a range of models to assess the relationship between innovation and flexible working arrangements. The models include:
· a pooled model with robust standard errors
· a standard random effects model, which assumes that the firm-specific effects are orthogonal to the other covariates in the model
· a random effects model with allowance for correlation between unobserved firm heterogeneity and covariates following the approaches suggested in Mundlak (1978) and Chamberlain (1984)
· a dynamic random effects probit model that follows Wooldridge (2005) to deal with the initial conditions problem.
The preliminary results from the above models indicate that there is persistence in innovation and that flexible working arrangements have a positive and significant impact on innovation.
The tests conducted on the results of the different models indicate that the firm specific effects play an important role in the analysis, there is evidence of correlation between firm heterogeneity and covariates, and the lag effects are positive and significant.
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