peak still expected large sales losses a year later in mid-2021 (Bloom et al., 2021). These results are aligned with previous studies showing negative short-term impacts on employment (Barrero and Bloom, 2020) and business activity (Fairlie and Fossen, 2021). Another study using high-frequency data from the United States Census Bureau’s Small Business Pulse Survey (SBPS) suggests that small firms experienced very sharp declines in activity, business sentiment, and expectations in the initial phase of the pandemic (Buffington et al., 2021). While there has been some recovery since then, multiple indicators of performance remained substantially in the negative range early in 2021.

From the perspective of firm dynamics, there are two relevant dimensions that can potentially explain differences in how countries, on average, are recovering from the COVID-19 shock: i) The performance of incumbent firms; and ii) the entry and exit of firms. Evidence, mainly from advanced economies, suggest that both dimensions have been playing an important role in the recovery process. In terms of the entry-exit margins, the literature suggests enhanced rates of entrepreneurship in advanced economies such as the United States, France, Germany, Japan, and the United Kingdom in contrast to a decline in new business formation in countries such as Portugal and the Russian Federation (Buffington et al., 2021; Haltiwanger, 2021; Djankov et al., 2021; Romei, 2020; OECD, 2021). For instance, Haltiwanger (2021) notes that the pace of applications since mid-2020 in the United States is the highest on record, although this surge in new business applications has been uneven across sectors and has mostly pertained to non-employer firms.

The COVID-19 pandemic may also have contributed to the exit of many firms. Miyakawa et al. (2021) estimated an increased firm exits in Japan of about 20% compared to the pre-pandemic year. OECD (2021) shows that among all surveyed countries, monthly bankruptcies dropped year-on-year by more than 30% on average since March 2020. Moreover, from September to November 2020, no significant rebound was observed and the total number of bankruptcies in 2020 remained lower than in the previous year.

A few developing countries are individually collecting survey data to understand the impact of the pandemic. For instance, FAO, IOM, and ITC (2021) follows 893 Iraqi firms in three rounds of surveys to find that nearly all firms register a decline in production or sales between February 2020, the pre-COVID-19 period, and the end of the year. By June 2020, firms suffered an average decline in revenue by 67%. Although revenue partially recovered between July and October 2020, it was still 23% below the pre-pandemic level. Using a panel of Chinese firms operating on Alipay platform, Kong et al. (2021) find that one year after the exposure to the COVID-19 pandemic, the operational status of micro-and small enterprises has significantly improved. However, they still face serious cash flow constraints. A higher percentage of newly established businesses in China adopted online sales and electronic information systems than those established earlier. Nevertheless, the expectations on expansion in employment remain subdued.

With entry-exit dynamics, the pandemic is bound to change the market structure and competition which in turn will also affect productivity. This will have profound consequences in shaping the recovery process in the long-run. However, the causality runs both ways. The pandemic shock 6