credit or financial insurance against non-payment provides similar results (Figure 11, panel f). The intermediation of financial institutions in securing letters of credit, a crucial tool to reduce risk in international transactions, is vital in the recovery of trading firms. Exporters in sectors more reliant on letters of credit exhibit significantly lower sales declines in the latest BPS round than exporters in other sectors. Since the COVID-19 pandemic is an uncertainty crisis rather than a banking or financial crisis, exporters in sectors that can rely on letters of credit are better able to mitigate the risks (Crozet et al., 2022).<sup>16</sup> Figure 11: Change in sales by sector type <!-- Start of picture text --> (a) Remote work feasibility (b) Durable products in output (c) GVC intensity<br>Non-Exporters Exporters Non-Exporters Exporters Non-Exporters Exporters<br>0 0 0<br>-10 -10 -10<br>-20 -18 -17 -20 -17 - 16 -20 -17 -17<br>-30 -28 -34 -23 - 31 -27 -30 - 23 -26 -29 - 33 -30 -28 -24 - 30 - 30<br>-40 -40 -38 -40 -37<br>-42 -42 -42<br>-50 -50 -50<br>less feasible more feasible less feasible more feasible fewer more fewer more lower higher lower higher<br>First round Latest round First round Latest round First round Latest round<br>P-value of test that non-exporters differ across groups: First round: 0.000;Latest round: 0.000 P-value of test that non-exporters differ across groups: First round: 0.015;Latest round: 0.102 P-value of test that non-exporters differ across groups: First round: 0.000;Latest round: 0.000<br>P-value of test that exporters differ across groups: First round: 0.002;Latest round: 0.694 P-value of test that exporters differ across groups: First round: 0.003;Latest round: 0.296 P-value of test that exporters differ across groups: First round: 0.811;Latest round: 0.907<br>(d) Contract intensity (e) External financial dependence (f) Reliance on letters of credit<br>Non-Exporters Exporters Non-Exporters Exporters Non-Exporters Exporters<br>0 0 0<br>-10 -10 -10<br>-20 -17 - 16 -20 -17 - 14 -20 -18 - 14<br>- 21<br>-30 - 25 -27 - 29 -30 - 25 - 25 - 30 -31 -30 - 24 - 29 -29<br>-34<br>-40 -39 -40 -39 -40 -38 -37<br>-42 -42<br>-50 -50 -50<br>lower higher lower higher lower higher lower higher lower higher lower higher<br>First round Latest round First round Latest round First round Latest round<br>P-value of test that non-exporters differ across groups: First round: 0.044;Latest round: 0.154 P-value of test that non-exporters differ across groups: First round: 0.069;Latest round: 0.992 P-value of test that non-exporters differ across groups: First round: 0.478;Latest round: 0.021<br>P-value of test that exporters differ across groups: First round: 0.003;Latest round: 0.363 P-value of test that exporters differ across groups: First round: 0.679;Latest round: 0.050 P-value of test that exporters differ across groups: First round: 0.983;Latest round: 0.017<br>Change in sales (%) Change in sales (%) Change in sales (%)<br>Change in sales (%) Change in sales (%) Change in sales (%)<br><!-- End of picture text --> _Notes:_ The sample includes 30,807 firms in panel a, 12,161 firms in panel b, 32,145 firms in panel c, 10,306 firms in panels d and e, and 12,161 firms in panel f, in 38 countries.

# **5.4.3 Country Characteristics**

Countries differ in their geographical location, their income - and hence their sophistication in trade and global value chains - but also in how they reacted to the health challenges posed by the COVID19 crisis. Evidence from BPS data supports three findings.<sup>17</sup> _First_ , the decline in sales was smaller and the recovery sharper for exporters in high–income countries relative to their counterparts in non-high–income countries. While exporters in non-high–income countries experienced a drop in sales of 39% initially and 26% later, exporters in high–income countries experienced smaller declines in sales of 26% and 14%, respectively. Qualitatively similar results are found for the probability of falling into arrears (Figure 12). These patterns are mirrored in the country’s specialization and

> 16See Appendix Figure C11 for results on the probability of falling in arrears.

> 17To compute the margins by country characteristics presented in this section, Equation (1) is modified to include an indicator variable for wave 2 of the BPS to account for differences potentially generated by the timing of the survey for firm outcomes referring to changes from the beginning of the pandemic until the time of the survey (e.g., the digitalization question asks whether the firm started using or increased the use of internet, online social media, specialized apps, or digital platforms in response to the COVID-19 outbreak and it allows for more time to digitalize for a firm surveyed in April 2021 than a firm surveyed in October 2020).

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