economic resilience stemming from digitization. In normal economic conditions, firms experience varying growth rates, with some expanding and gaining market share while others contracting. These differential growth patterns are also observed after economic shocks, where firms are affected differently. The asymmetrical impact of large shocks can be attributed to sector-specific effects or variations in firm-level characteristics.<sup>3</sup> As emphasized in World Bank (2023b), certain firm-level characteristics can directly insulate companies from shocks, while others can place them in a better position to adapt swiftly. These characteristics are crucial in determining how firms respond to economic shocks and the speed of their recovery. By analyzing these dynamics, our study aims to enhance the understanding of how firms confront and recover from the economic impacts of the invasion on another country’s economy, providing insights into their vulnerabilities and resilience to better inform policy response options. More broadly, our paper adds to the existing literature on how conflicts in one country can affect the performance of firms in neighboring or third countries through trade, financial, and migration connections.<sup>4</sup> Our analysis aims to shed light on two interconnected dimensions to provide a comprehensive understanding of the effects of Russia’s invasion of Ukraine. Firstly, we examine one exposure factor that conditions the short-term effects of the invasion on firm performance and is expected to influence firms' reactions to such economic shock—we focus on firms’ trade exposure to Russia. We hypothesize that firms with higher trade exposure to Russia have faced distinct challenges (or opportunities) compared with firms with lower trade exposure to Russia. This factor is particularly relevant for Central Asian countries, given their strong economic ties with Russia as a major buyer of commodities and final goods. Therefore, understanding how the level of trade exposure shapes firm-level performance response is crucial for comprehending the differential impact of the invasion shock on private business in Central Asia.

Secondly, our study sheds light on possible mitigating factors that can help firms better cope with the impact of the invasion shock and enhance their resilience to similar future shocks. We focus on the role of digital solutions. While firm exposure to trade with Russia can shape the differential impact of the invasion on firm performance even within the same sectors, some factors can help firms better cope with the shock. Previous research has highlighted the benefits of digital technologies for firms in their coping with the effects of the COVID-19 pandemic. Studies conducted by Comin et al. (2022) and Cirera et al. (2022) have shown that firms with higher pre-pandemic adoption of digital and information technologies performed better during the pandemic because of their ability to adapt business strategies in response to the shock.<sup>5</sup> Building on these findings, we aim to explore to what extent the Central Asian firms that adopted digital solutions before the invasion were able to mitigate the adverse impact of the invasion shock on their performance. By examining the adoption and utilization of digital technologies among firms in Central Asia, our study aims to provide insights into the effectiveness of these business strategies in mitigating the negative short-term impacts of the invasion shock and upholding firm performance and resilience.

> 3 For example, studies by Cirera et al. (2021) and Apehdo et al. (2020) have demonstrated that the burden of the COVID-19 pandemic was disproportionately borne by small and medium-sized firms.

> 4 For example, Akgündüz et al. (2020) found that the Syrian conflict led to an increase in the number of migrants entering Türkiye, which in turn had a positive impact on the sales performance of existing firms operating in Türkiye, while also expanding the number of new firms being registered in the country.

> 5 For instance, digital and information technologies can help firms to quickly identify and exploit opportunities to pivot their activity toward less affected markets.

3