Innovation is a complex process and has multiple dimensions. In assessing the linkage between innovation and productivity, most of studies, due to data limitations, use only one single indicator to measure innovation. This paper argues that this practice may systematically bias against certain groups of companies or industries since they often engage in different innovation activities to achieve their different business objectives. To better measure innovation, this paper develops an innovation index, a linear combination of multiple innovation indicators based on a latent variable model. The proposition is supported by evidence from a rich micro dataset for Canadian manufacturing firms.Innovation, Productivity,
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