# **1. Introduction**

The pandemic-induced economic crisis resulted from a chain reaction effect of global lockdowns imposed to contain the COVID-19 virus, which reverberated through demand, supply, logistics and uncertainty shocks around the world (Apedo-Amah et al., 2020). For firms, the use of digital technologies became a key pathway to mitigate the economic losses that resulted from these shocks.

There is ample evidence that illustrates the role of digitalization in improving the performance and resilience of firms during the COVID-19 pandemic. In a cross-country setting, Doerr et al. (2021) find that firms headquartered in jurisdictions with better digital infrastructure generated relatively higher revenue during the pandemic. The authors find that improving a country’s digital technology capability by one standard deviation is associated with a relative increase in revenues of the average firm by around 4%. In the United States, Oikonomou et al. (2023) find that unemployment increased less in states with greater IT adoption before the pandemic. Similarly, Bellatin and Galassi (2022) find that cities in the United States with more job postings related to digital technologies before the pandemic were characterized by more jobs during the pandemic.

The relationship between digitalization and firm performance has also been analyzed using data on technology use at the industry- and firm-level. Using data from 24,000 firms in 75 countries, Copestake et al. (2022) find that firms in industries that are more digitalized experienced lower revenue losses following the COVID-19 recession. Using data from the Middle East and Central Asia region, Abrardi et al. (2022) find that digitally-enabled firms faced a lower decline in sales by about 4 percentage points during the pandemic compared to digitally-constrained firms. Cirera et al. (2022) use firm-level survey data from Brazil, Senegal, and Viet Nam to show that pre-COVID 19 digital technology sophistication helped firms mitigate the initial negative impact of the pandemic. Further, there is evidence that the COVID-19 shock accelerated the use of digital platforms and investment in digital solutions among businesses (Avalos et al., 2024), albeit more in economies with higher digital penetration before the pandemic (Cavallo et al., 2022).

There is also a burgeoning literature that focuses on the capability to work-from-home (WfH) as an implied link between digital technologies and the resilience of firms.<sup>1</sup> Firms with high pre-pandemic work-from-home feasibility fared significantly better during the COVID-19 pandemic in terms of sales, net incomes, and stock returns than their peers (Bai et al., 2020; Criscuolo et al., 2021; Angelici and Profeta, 2020; Zhang et al., 2022).

However, there is no systematic analysis that directly tests this mechanism, that is, whether and how digitalization affected firm resilience through remote work that allowed individuals to operate at physical distance during the pandemic. This is important for micro, small and medium enterprises (MSMEs), whose access to digital technologies in developing countries is rather limited.

There is also no systematic analysis on whether the positive effect of digitalization on firm resilience

> 1See for example Dingel and Neiman (2020); Kogan et al. (2020); Carletti et al. (2020); Acharya and Steffen (2020); Albuquerque et al. (2020); Altig et al. (2020); Bretscher et al. (2020); Tambe et al. (2020); Fahlenbrach et al. (2021); Ramelli and Wagner (2020); Mahmud et al. (2021).

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