Productivity and firm exit during the COVID-19 crisis: cross-country evidence

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues. An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished. The papers carry the names of the authors and should be cited accordingly. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent.

Competition and firm recovery post-COVID-19

“…For example, George and others ( 2022 ) suggest that working remotely increases employees’ self-reported productivity . As noted by Muzi and others ( 2022 ), the fact that all our explanatory variables, including labor productivity, come from the matched pre-COVID-19 ES data set should alleviate concerns about reverse causality.…”

“…We examine the relationship between firms’ pre-crisis labor productivity and firm performance during the crisis by estimating the following regression specification: where subscript i denotes each firm; j the sector of the firm; and k the country in which the firm is located. Similar specifications have been used by Kozeniauskas, Moreira, and Santos ( 2020 ) and Muzi and others ( 2022 ) to assess the impact of COVID-19 on firm performance. The dependent variable Firm performance is captured by one of six variables: percentage change in sales; percentage change in employment; decreased employment; anticipate falling into arrears; increased online activity; and increased remote work.…”

“…Finally, we control for the location of the firm’s main market (local, national, or international) as movement restrictions due to the pandemic might have impacted firms with different main markets differently. Moreover, export-oriented firms may have been able to substitute sales at home with sales abroad during the negative demand shock at home given that, while global in scale, the COVID-19 crisis affected countries differently (Muzi et al, 2022 ). Similarly, firms whose main market is national rather than local may have substituted sales as the COVID-19 crisis often affected regions within a country differently.…”

“…Using data from a survey of UK firms collected between July 2020 and August 2021, Bloom and others ( 2021 ) also show that higher productivity firms contracted hours worked less than lower productivity firms. Focusing on firm exit, Muzi and others ( 2022 ) use ES data for 31 countries and find that higher productivity firms were less likely to exit during the COVID-19 crisis.…”

From rapid decline to high growth: where in the distribution did COVID hit hardest?

“…Indeed, authors such as Muzi et al (2023) find strong and negative relationships between firm exit, digital presence and innovation. Firms with digital presence (i.e.…”