# **1. Introduction**

During the COVID-19 pandemic, firms have been hit through multiple channels, including disruptions in global supply chains, depressed demand, liquidity problems, and uncertainty. Globally engaged firms, in particular, became the center of attention with the immediate decline in global trade after the outbreak of the pandemic (Brenton et al., 2022). But global trade bounced back sharply (Meijerink et al., 2020) unlike the more protracted ‘U-shaped’ recovery pattern in firm sales and other outcomes documented in Cirera et al. (2021a).<sup>1</sup> The difference in the pattern of recovery for trade relative to sales and other economic outcomes at the firm-level raises two questions. _First_ , do globally engaged firms experience a different path of recovery relative to other firms? _Second_ , what explains such differences in performance, if any? Using three rounds of Business Pulse Surveys (BPS) data from 45 countries covering both globally engaged firms and domestically-oriented firms and customs data from 20 countries covering only the universe of globally engaged firms, this paper presents novel stylized facts on the impact of the COVID-19 pandemic and subsequent recovery for globally engaged firms as well as on their adjustment mechanisms.

Globally engaged firms, broadly defined as those that participate in international trade (directly or indirectly), are special for several reasons. They are known to be larger, more productive, and pay higher wages than domestically-oriented firms. Since firms with stronger capabilities, such as management practices or technology, tend to cope better than others during periods of turmoil (Grover and Karplus, 2021), it is crucial to understand if such capabilities pay off in the face of massive global demand and supply shocks. These dimensions are important from a policy perspective more so because global firms contribute substantially to aggregate fluctuations and the propagation of foreign shocks to the domestic economy (Cravino and Levchenko, 2017; Di Giovanni et al., 2014, 2018).

In a world of global value chains (GVCs), firms whose inputs and products cross borders multiple times may be particularly vulnerable to shocks during a worldwide downturn (Vannoorenberghe, 2012; Kurz and Senses, 2016) because of, for example, currency risk, risk of non-payment, and shipping risk (Eppinger et al., 2018). However, access to international markets could also make firms more resilient to shocks by helping diversify sources of demand (Esposito, 2022; Borin et al., 2021). Given these two opposing forces, the response of globally engaged firms to downturns may not be uniform and deserves an empirical investigation. Our work highlights the following six stylized facts.

_First_ evidence from both BPS and quarterly customs data suggests that the COVID-19 pandemic had a strong immediate negative impact on average firm-level exports and imports but these recovered partially in the rest of 2020. The adverse effects are more pronounced for GVC firms defined as those that participate in both exports and imports, relative to firms engaged only in exports or only in imports. Customs data reveals that the strongest negative impact on firm exports and imports was experienced in the second quarter of 2020, relative to the same quarter of 2019. The declines in firm exports and imports are more persistent for GVC firms, continuing in the last two quarters of 2020.

> 1Global trade volumes fell by 8.2% in 2020 and are estimated to have grown by 9.5% in 2021 (World Bank, 2022).

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