How Industrial Design Matters for Firm Growth at Different Stages of Development: Evidence from Korea, 1970s to 2010s

Abstract

The traditional literature on the role of intellectual property rights (IPR) in innovation highlights the strength of IPR protection in the context of the tradeoff between innovation and diffusion. More recent literature analyzes the role of diverse forms of IPR in promoting innovation and growth and delves into not only regular patents but also utility models (or petite patents) and trademarks. Using firm‐level IPR (patents, designs and trademarks) data from Korea, we further extend this new strand of literature to explore the role of designs at different stages of development. The data spans five decades and can be divided into three subperiods that represent different stages of economic development. We find that design‐intensive sectors tend to be more export oriented. Further, firms’ sales growth is significantly associated with the design intensity of firms. Such association is found only during the later stages of economic development in Korea. Taken together with earlier studies, our findings imply that different forms of IPR, in particular designs, matter differently for innovation and firm performance at different stages of development. Designs are not that important in the early stages of development when economic growth relies on the mass production of low‐cost goods by low‐wage workers. The importance of design rises with economic development at later stages when product differentiation becomes critical. A unique and smart appearance increases value in the eye of the customer value and, thus, could help firms’ sales performance.