Firms’ Digitalization during the COVID-19 Pandemic : A Tale of Two Stories

The COVID-19 pandemic accelerated the digital transformation of businesses. Using a unique globalpanel dataset, this paper documents the patterns of digital adoption during the pandemic across firms in 57 (mostlydeveloping) countries. The data show the tale of two stories. On one hand, the pandemic drove firms to increasethe use of digital platforms and invest in digital solutions. On the other hand, there is evidence that thedigital divide increased. There remain substantial gaps between small and large firms as well as across sectors,particularly for new investments in digital solutions. Firms that did not use any digital platform or channel before thepandemic, also lagged in their response to the pandemic, increasing the gap with those that were more digitallyready. Moreover, although the share of online sales across firms for all size groups increased, there is a growingconcentration of online sales among top firms. The paper discusses some of the factors associated with this increasein the digital divide and find that changes in digitalization remain even after mobility restrictions haveeased. The analysis suggests that the pandemic has accelerated digitalization, but some firmsdisproportionately benefited from the digital transformation, potentially increasing the digital divide.