The purpose of this study is to evaluate the impact of the 2008 financial crisis on innovation, as measured by the emergence of dominant designs. A negative impact is substantiated theoretically and empirically, based on longitudinal patent data from the OECD. This study also finds evidence for the moderating impact of globalization on the relationship between innovative performance and the emergence of dominant design. Thus, globalization is more important with regard to the establishment of dominant designs than it was before the financial crisis of 2008. Further, it is found that following the crisis, science-based industries tend to have more dominant designs than other industries.

Introduction

The great financial crisis of 2008 is today considered to be one of the longest and most significant economic crises that the world has ever seen (Bordo & Haubrich, 2017). It has driven a dramatic change in the 21st century’s business environment, which had already experienced the turbulent waves of the digital revolution, framed against a backdrop of steadily increasing globalization. Many factors contributed to this financial crisis, notably an increase in debt due to the introduction of novel financial instruments, the emergence of a housing (mortgage) bubble, irresponsible risk taking, and lax oversight (Hausman & Johnston, 2014a). The main effects of the crisis were a decrease—or slower economic growth—in industrial countries, persistently high unemployment, continuous private sector deleveraging, large public sector deficits and debts, much greater influence of politics on the economy, a significant lowering of inflation, very low interest rates, and an accelerated migration of growth and wealth dynamics into the emerging world (El-Erian, 2014). As a result, the financial crisis of 2008 can be interpreted as the “gale of creative destruction”, identified by Schumpeter (1942) in his theory of business cycles as the characteristic form of capitalist development, with a succession of upturns creating opportunities for profit and downturns providing scope for restructuring. (Tan & Mathews, 2010). However, Schumpeter (1934) also considered that innovation was the engine of economic recovery and prosperity in capitalistic systems. Innovation plays a leading role in reigniting growth in economies and delivering new benefits to the world’s population and its varied societies (Kim & Huarng, 2011).3).