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  • 1 0000000404811396https://isni.org/isni/0000000404811396International Monetary Fund

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WP/22/34

IMF Working Paper

Middle East and Central Asia Department

Digitalization and Resilience: Firm-level Evidence During the COVID-19 Pandemic

Prepared by Nordine Abidi, Mehdi El Herradi, Sahra Sakha*

Authorized for distribution by S. Pelin Berkmen

February 2022

IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

ABSTRACT: The COVID-19 pandemic has resulted in an unprecedented shock to firms with adverse consequences for existing productive capacities. At the same time, digitalization has increasingly been touted as a key pathway for mitigating economic losses from the pandemic, and we expect firms facing digital constraints to be less resilient to supply shocks. This paper uses firm-level data to investigate whether digitally-enabled firms have been able to mitigate economic losses arising from the pandemic better than digitally-constrained firms in the Middle East and Central Asia region using a difference-in-differences approach. Controlling for demand conditions, we find that digitally-enabled firms faced a lower decline in sales by about 4 percentage points during the pandemic compared to digitally-constrained firms, suggesting that digitalization acted as a hedge during the pandemic. Against this backdrop, our results suggest that policymakers need to close the digital gap and accelerate firms’ digital transformation. This will be essential for economies to bounce back from the pandemic, and build the foundations for future resilience.

RECOMMENDED CITATION: Abidi, N., El-Herradi, M., and S. Sakha (2022), Digitalization and Resilience: Firm-level Evidence during the COVID-19, IMF Working Paper WP/22/34, Washington DC: International Monetary Fund.

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Digitalization and Resilience: Firm-level evidence during the COVID-19 Pandemic

Nordine Abidi* Mehdi El Herradi Sahra Sakha February 2022

Abstract

The COVID-19 pandemic has resulted in an unprecedented shock to firms with adverse consequences for existing productive capacities. At the same time, digitalization has increasingly been touted as a key pathway for mitigating economic losses from the pandemic, and we expect firms facing digital constraints to be less resilient to supply shocks. This paper uses firm-level data to investigate whether digitally-enabled firms have been able to mitigate economic losses arising from the pandemic better than digitally-constrained firms in the Middle East and Central Asia region using a difference-in-differences approach. Controlling for demand conditions, we find that digitally-enabled firms faced a lower decline in sales by about 4 percentage points during the pandemic compared to digitally-constrained firms, suggesting that digitalization acted as a hedge during the pandemic. Against this backdrop, our results suggest that policymakers need to close the digital gap and accelerate firms’ digital transformation. This will be essential for economies to bounce back from the pandemic, and build the foundations for future resilience.

Keywords: COVID-19, digitalization, technology adoption, economic resilience, Middle East and Central Asia

JEL Codes: 033,I15, D22

*

We thank Yasser Abdih, S. Pelin Berkmen, Mohamed Belkhir, Davide Furceri, Manabu Nose, Sergio Schmukler (discussant) and Cesar Manuel Serra for helpful comments on various drafts of this paper as well as Cooper Allen for the edits. We would also like to thank seminar participants at the Middle East and Central Asia (MCD) Virtual Discussion Forum, Asia and Pacific Department (APD) Virtual Seminar and 1st Annual Central Bank Conference on Development Economics in the Middle East and North Africa.

*

“International Monetary Fund. E-mail: NAbidi@imf.org

International Monetary Fund and Aix-Marseille Univ, CNRS, AMSE, Marseille, France. E-mail: elherradielme-hdi@gmail.com

International Monetary Fund. E-mail: SSakha@imf.org.

We thank Yasser Abdih, Pelin S. Berkmen, Mohamed Belkhir, Davide Furceri, Manabu Nose, Sergio Schmukler (discussant) and Cesar Manuel Serra for helpful comments on various drafts of this paper as well as Allen W. Cooper for the edits. We would also like to thank seminar participants at the Middle East and Central Asia (MCD) Virtual Discussion Forum, Asia and Pacific Department (APD) Virtual Seminar and 1st Annual Central Bank Conference on Development Economics in the Middle East and North Africa.

Digitalization and Resilience: Firm-level Evidence During the COVID-19 Pandemic
Author: Nordine Abidi, Mehdi El Herradi, and Sahra Sakha