# **1. Introduction**

The COVID-19 pandemic is resulting in an unprecedented shock to the private sector, threatening the global progress in poverty reduction and shared prosperity made in recent years . The impact on firms and the destruction of existing productive capacities due to the pandemic could have large effects on the growth prospects of developed and developing economies, not only in the short-run but over the longer run; especially if this destruction also affects the more productive firms. Restrictions to mobility and economic activity, higher transaction costs and potential cross-country trade and currency disputes can limit the allocation of resources within countries and across sectors, worsening misallocation in the economy and lowering aggregate productivity growth.<sup>1</sup> Understanding the severity of the impact of the shock and its distribution, the adjustment mechanisms adopted by firms, and the uncertainty created, is critical to understand these reallocation channels and design better policies that can help smooth the impact of the shock and support recovery.

This paper provides the first comprehensive assessment at the global level of the short-term impact of the pandemic across the world relying on a novel dataset collected during the months of April through August 2020.<sup>2</sup> The data collected cover more than 100,000 businesses across 51 countries, primarily low- and middle-income countries across the world.<sup>3</sup> Data collection aimed at covering almost all sectors of the economy (i.e. manufacturing, services and agriculture) and a large range of countries with different income levels (i.e. ranging from Afghanistan to Italy) as well as different levels of exposure to the COVID-19 shock.<sup>4</sup> To the best of our knowledge, this is the most comprehensive assessment of the short-term impact of COVID-19 on businesses in terms of Our paper contributes to the quickly expanding literature assessing the economic impact of COVID-19. Much of the early research attempts to draw parallels with previous crises or uses macro simulations in combination with some ex-ante measures of vulnerability to the pandemic. Ludvigson et al. (2020), for example, extrapolate from past natural disasters to model COVID-19 as a series of large, multiple-period exogenous shocks.<sup>5</sup> Bonadio et al. (2020) use a quantitative framework to simulate a global lockdown as a contraction in labor supply for 64 countries, where labor supply is assumed to change with the fraction of work in the sector that can be done from home, interacted with the stringency with which countries imposed lockdown measures. They find a major contraction in GDP, with a quarter of the impact attributed to disruptions in global supply chains.

Another strand of the literature uses high-frequency, unconventional data to monitor the pan-

> 1At the same time, the shock could create pressures on firms to expand their use of digital technologies or increase competition which could also lead to higher productivity growth and better resource allocation.

> 2Data were collected jointly by World Bank, national authorities and partner organizations relying on an homogeneous questionnaire.

> 3Among richer countries, our dataset covers Cyprus, Greece, Italy, Poland, Romania and Slovenia. Data collected cover all regions where the World Bank is present: East Asia and Pacific (EAP), Europe and Central Asia (ECA), Latin America and the Caribbean (LAC), Middle East and North-Africa (MNA), South Asia (SAR), and Sub-Saharan Africa (SSA).

> 4Twenty-eight countries included businesses in agriculture in the sample, and these observations account for around 5% of the sample. Most are in the Philippines, Tanzania, Ghana, Kenya, and Tunisia.

> 5Using a costly disaster index, the authors estimate that under fairly conservative assumptions, the pandemic could lead to a cumulative loss in industrial production of 20% and in service sector employment of nearly 55 million jobs over the next 12 months in the United States.

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