Competition and Firm Recovery Post-COVID-19

This paper examines the impact of the COVID-19 crisis on the reallocation of economic activityacross firms, and whether this reallocation depends on the competition environment. The paper uses the World Bank’sEnterprise Surveys COVID-19 Follow-up Surveys for about 8,000 firms in 23 emerging and developing countries inEurope and Central Asia, matched with 2019 Enterprise Surveys data. It finds that during the COVID-19 crisis,economic activity was reallocated toward firms with higher pre-crisis labor productivity. Countries with a strongcompetition environment experienced more reallocation from less productive to more productive firms than countries witha weak competition environment. The evidence also suggests that reallocation from low- to high-productivity firmsduring the COVID-19 crisis was stronger compared with pre-crisis times. Finally, the analysis shows thatgovernment support measures implemented in response to the crisis may have adverse effects on competition andproductivity growth since support went to less productive and larger firms, regardless of their pre-crisis innovation.