Digitalization boosted firm performance during pandemic
A Bank of England working paper finds that firms with pre-pandemic digital investments significantly outperformed less digitalized peers during the Covid-19 crisis and recovery. The study used comprehensive administrative data from Türkiye and a novel firm-level digitalisation index.
Digital Firms Outperformed Peers
The research, employing coarsened exact matching and a difference-in-differences framework, revealed that more digitalised firms in Türkiye exhibited superior performance.
Specifically, these firms showed 3% higher total assets, 4% higher net sales, and 2% higher employment compared to their less digitalised counterparts.
Gains were even more pronounced in profitability, with an increase of 0.44 percentage points, and return on assets, rising by 0.42 percentage points.
Export share also saw a notable boost of 0.16 percentage points.
These performance advantages emerged during the initial pandemic year of 2020 and persisted into the recovery period of 2021, underscoring the enduring benefits of digital readiness.
The study's robust methodology provides causal evidence for the role of digitalization in fostering resilience.
Resilience Through Networks and Productivity
The paper investigates several mechanisms explaining the superior performance of digitalised firms.
It found that these firms expanded their trade networks, adding 3% more partners and trading over 2% greater distances, which helped maintain supply chain relationships amidst disruptions.
Furthermore, digitalised firms experienced lower worker turnover and higher employee retention, consistent with the adoption of remote work and flexible arrangements.
Crucially, they also demonstrated higher productivity growth during the pandemic and recovery years.
This multi-faceted resilience suggests that digital investments provide a comprehensive buffer against economic shocks, enabling firms to adapt operations, retain talent, and sustain growth even under adverse conditions.
Digitalisation: A proven shock absorber
This study provides compelling causal evidence that pre-crisis digital investments are not merely beneficial but critical for firm resilience during economic shocks.
Its granular firm-level data and robust methodology offer a strong foundation for policymakers to advocate for accelerated digital transformation.
The findings underscore that fostering a digitally mature business environment can significantly buffer future crises and drive more stable economic growth.