Digitalization, a firm’s COVID-19 vaccination? : do more digitalized firms outperform less digitalized firms during the pandemic?

Abstract

This paper examines how the first nine months of the COVID-19 pandemic have impacted more and less digitalized firms in Norway. Our main hypothesis is that more digitalized firms outperform their less digitalized counterparts in response to the pandemic. We merged detailed business data on 1,351 Norwegian firms with data from two surveys from May and December 2020 regarding the firms’ COVID-19 responses to shed light on this hypothesis. The specific areas studied are (1) development of new products, logistics, or distribution, (2) changes in planned investments, (3) temporary and permanent layoffs, and (4) use of government aid. We use the Random Forest algorithm to identify the most important variables for our regressions. For each area studied, we run standard WLS regressions based on one-time sampled cross-sectional data with these variables as inputs. Additionally, we exploit the fact that 185 firms answered both surveys to conduct a difference-in-differences strategy on layoffs. Our findings show that being more digitalized increases firms’ propensity to develop new products, logistics, and distribution in response to the pandemic. However, being more digitalized does not seem to impact investments, permanent and temporary layoffs, or the use of government aid. Thus, we only find weak empirical evidence for our main hypothesis claiming that more digitalized firms outperform their counterparts in the first nine months of the pandemic.