capabilities or access to finance conditions pre-COVID-19. Results show that almost half of the firms increased the use of digital platforms in response to the pandemic, and about a quarter invested in new digital solutions. However, the response was not equal. Larger and more digitally ready (pre-pandemic) firms increased and invested more in digital solutions, increasing the digital divide. Inequality and concentration measures in online sales show that even if more firms are using digital channels, the gap remains due to a disproportionate increase in digital markets concentration by some firms.

The remainder of this paper is structured as follows. Section 2 describes the data and methodology used in the analysis. Section 3 provides some general descriptive statistics on the share of firms using digital technology in response to COVID-19 and analyze the main purpose for which the technology is being used for. Section 4 compares the gap in the use of and investment in digital technologies along three key dimensions: country, sector, and size of the firms. Section 5 analyzes the inequality across firms regarding online and offline sales, and remote and non-remote workers. Section 6 explores four potential factors associated with our findings: access to finance, regulations, infrastructure, and firm capabilities. The last section concludes.

# **2. Data and methodology**

The World Bank, through the Business Pulse Surveys (BPS) and the Enterprise Surveys (WBES), has collected data on more than 100,000 firms in more than 65 countries since the start of the COVID19 pandemic. This paper uses a harmonized dataset of both surveys, and in particular, the module on the digital response that firms’ managers implemented to counteract the negative impact brought by mobility restrictions and a change in consumption patterns (see Watanabe and Omori (2020)). In most of the paper, unless otherwise noted, the analysis restricts the sample to firms with 5 or more employees, which was a threshold used in most countries for which data is available.<sup>3</sup> Three main indicators regarding the digital response by firms were collected. First, whether the firm has started or increased the use of digital platforms in response to the pandemic. Second, if the firm invested in the implementation or use of digital solutions; and third, the share of sales done through online channels. Throughout the paper, analyses explore how firms differed in their digital response towards the pandemic, and the possible implications of such responses.

For the analysis, the paper will focus on the 57 countries<sup>4</sup> with data on digital changes. In total, there is information on 65,130 firms, where 25,255 are panel firms. This feature of the data allows to . analyze how digital changes happened since the start of the pandemic<sup>5</sup> The first wave of surveys

> 3The WBES uses the threshold of 5+ employees.

> 4Countries include: Argentina, Bangladesh, Benin, Brazil (Sao Paulo), Bulgaria, Cambodia, Chile, Croatia, Cyprus, Czechia, the Arab Republic of Egypt, El Salvador, Estonia, Georgia, Greece, Guatemala, Honduras, Hungary, India, Indonesia, Italy, Jordan, Kenya, Kosovo, Kyrgyzstan, Latvia, Lesotho, Lithuania, Madagascar, Malaysia, Malta, Moldova, Mongolia, Morocco, Mozambique, Nepal, Nicaragua, Pakistan, Paraguay, Poland, Portugal, Romania, Senegal, Sierra Leone, the Slovak Republic, Slovenia, Somalia, South Africa, Sri Lanka, Tajikistan, Tanzania, Tunisia, Türkiye, Uzbekistan, Vietnam, Zambia, and Zimbabwe)

> 5Not all countries implemented the three rounds of surveys. Within each country, some firms were observed during

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