Does COVID-19 pandemic spur digital business transformation? Evidence from selected MENA countries

PurposeIn the light of high reliance on digital technology to mitigate the consequences of the coronavirus disease 2019 (COVID-19) pandemic and its containment measures, this study investigates the factors influencing firms' decision to adopt digital technologies during COVID-19 in four Middle East and Northern African (MENA) countries, namely, Egypt, Jordan, Morocco and Tunisia.Design/methodology/approachThe study used the International Labour Organization (ILO)/Economic Research Forum (ERF) COVID-19 - MENA Monitor Enterprise Survey (CMMENT), comprising 5,480 firms, surveyed during 2020-2021. The empirical model is estimated using the linear probability model (LPM) to address the problem of unobserved heterogeneity between firms, countries, and time.FindingsThe results revealed that firm characteristics, such as firm size and foreign ownership, encourage digital transformation in the business sector. Moreover, firms that face challenges during the pandemic, comply with the containment measures, and receive government assistance are more likely to adopt digital solutions. Furthermore, the results indicated that firms operating in services sector have a higher likelihood to adopt digital technology. Disaggregating the total sample into several sub-samples, the results are robust across countries and technology types, supporting the initial hypothesis that COVID-19 encourages digital transformation in the MENA region.Originality/valueThe study has numerous contributions. First, to the best of the authors' knowledge, this is the sole study that uses micro data collected during the COVID-19 to examine the factors influencing firms' decision to adopt and invest in digital solutions in the MENA countries. Second, the paper employs the LPM estimator to address the issue of unobserved heterogeneity between firms, countries and time. Finally, the paper offers some practical recommendations for accelerating digital transformation in MENA region.

Productivity growth over the business cycle: cleansing effects of recessions

This paper investigates the impact of recent recessions on the origins of productivity growth. We show how business cycles affect productivity growth, with particular attention for the impact of job reallocation and labor hoarding. We find evidence that recessions induce productivity enhancing job reallocation in manufacturing but not in services industries and show that labor hoarding mitigates this cleansing effect of recessions. Furthermore, we show how entry and exit of firms and industry dynamics shape the evolution of aggregate productivity.Plain English SummaryDuring recessions, governments support firms via temporary unemployment programs to save jobs. A side effect is that job reallocation and exit of low-productive firms can be distorted, while such cleansing effects typically spur productivity growth. This paper investigates how recessions affect productivity growth, with particular attention for the impact of job reallocation and labor hoarding. We find evidence that recessions induce productivity enhancing job reallocation in manufacturing but not in services industries and show that labor hoarding mitigates this cleansing effect of recessions. Furthermore, we show how entry and exit of firms and industry dynamics shape the evolution of aggregate productivity. As many developed economies struggle with a slowdown in productivity growth, it is important that policy makers understand the impact of recessions on the micro origins of productivity growth and are aware of how temporary policies during recessions could affect long-term productivity growth.

Working from home for good? Lessons learned from the COVID-19 pandemic and what this means for the future of work

In the wake of the COVID-19 pandemic, more firms than ever before have enabled their employees to work from home. Based on a representative firm survey in Germany, surveying 2.000 firms per month throughout the course of the pandemic (October 2020 until June 2022), this paper provides suggestive evidence concerning the effects of working from home (WFH) at different points in time during the pandemic and discusses implications for the future of work. We assess the potential of WFH in Germany to be 25–30% of private-sector employees. On the firm side, we find that higher WFH use is positively related to business success during the crisis, with increased employee productivity and employees working more hours when remote being possible mechanisms. Larger firms in particular are open towards expanding their WFH offerings in the future. During the pandemic, firms have experienced that WFH has worked well in many respects (e.g., productivity of employees, quality of work performed) and, for the future, they are willing to facilitate WFH in order to give their employees more flexibility, and to be considered an attractive employer. However, working on site brings advantages (e.g., communication, cooperation and onboarding of new employees) firms will not want to sacrifice, pointing towards a hybrid model of work.

Effect of COVID-19 Lockdown on the Profitability of Firms in India*

We examine the effect of COVID-19-induced lockdown on the profitability of listed firms in India. We use quarterly income statement of 4168 listed firms for the period between April–June 2020 quarter and April–June 2022 quarter and compare their financial data with previous quarters (2015–2019). Using a difference-in-difference estimation framework and various profitability measures, we find that the COVID-19 lockdown has reduced profits by around 15 per cent for listed firms in India. Our results are robust to various robustness tests and alternate specifications. We find evidence of firms losing revenues more than expenses, thus leading to decline in profits. The main effect is conditioned by firm-specific factors. Specifically, firms that are smaller, older, unlisted and that do not belong to any group witnessed larger decline in profitability due to lockdown. Additionally, the effect of lockdown is more pronounced in areas that had lower mobility and higher COVID-19 spread. These results underscore the importance of institutional factors and pre-existing firm characteristics in conditioning the impact of lockdown on firm profitability. © 2023 The Economic Society of Australia.

Startups and employment following the COVID-19 pandemic: a calculator

Early indicators suggest that startup activity across countries is heavily affected by the COVID-19 pandemic and the associated lockdowns. At the same time, empirical evidence has shown that such disturbances may have long-lasting effects on aggregate employment. This paper presents a calculator which can be used to compute these effects under different scenarios regarding (i) the number of startups, (ii) the growth potential of startups and (iii) the survival rate of young firms. We apply our calculator to the United States and four European countries: France, Germany, Italy and Spain. We find that employment losses can be substantial and last for more than a decade, even when the assumed slump in startup activity is only short-lived. Almost half of the long-run losses is caused by fewer high-growth firms, 'gazelles', starting up during the pandemic. Our results also suggest that the long-run effects of the pandemic may vary across countries substantially with Germany possibly being shielded due to its low business dynamism.

Distribution of COVID-19 government support and its consequences for firm liquidity and solvency.

We utilize several unique firm-level datasets in order to assess the efficiency and effectiveness of the government support aiming to curb the economic consequences of the coronavirus pandemic. The results, drawing on the experience of a small open European country, suggest the distributed COVID-19 subsidies save non-negligible number of jobs and sustain economic activity during the first wave of the pandemic. General distribution rules designed on the fly may bring close to optimal results in terms of the support allocation, as relatively more productive, privately owned, foreign-demand oriented firms are prioritized and firms with a high environmental footprint or zombie firms record a relatively lower chance of obtaining government funding. By assuming constant cost elasticities to sales, we show that the pandemic deteriorates strongly firm profits and increases significantly the share of illiquid and insolvent firms. Government wage subsidies somewhat mitigate firm losses and have statistically significant effect, but relatively mild compared to the size of the economic shock. Our estimates also confirm that larger firms, receiving smaller relative size of the support, have more space to cover their additional liquidity needs by increasing trade liabilities or liabilities to affiliated entities, while SMEs face higher risk of insolvencies.