Introduction

5. Digital Technologies and Resilience to Shocks

Introduction

The widespread diffusion of computers, smartphones, and the internet has enabled a wide variety of information and communication technologies (ICT) used for business purposes. Indeed, the technology options firms use to perform general business functions (GBFs) (such as business administration, business planning, sales, and payment) are predominantly digital, and they are applied by firms with different levels of sophistication.1 In this regard, digitalization and technology sophistication are almost synonymous. Policy and academic discussions for at least a decade—and well before the COVID-19 pandemic—have focused on promoting digitalization to improve productivity and promote growth (for an extended discussion in the context of Europe, see Hallward-Driemeier et al. 2020). This focus has resulted in the proliferation of policy strategies that prioritize the digitalization of businesses and that include other areas such as government services or finance.

As a response to the pandemic, businesses worldwide have significantly increased their use of digital technologies. Despite this overall increase, the intensity in the use of digital tools has varied considerably. For example, larger firms and firms that that had already gone digital before the pandemic have intensified their digitalization more than other types of firms. This trend is raising concerns that the digital divide between countries and firms is widening. Thus, while the quick response from businesses to adopt digital technologies represents an important opportunity for technology upgrading, additional efforts are needed to facilitate this process for laggard firms to avoid leaving some firms and workers behind, but also closing the productivity gap and increasing aggregate productivity. The next part of this chapter explores the patterns of digitalization across firms and their implications.

The rest of the chapter explores the role of digital technologies in increasing firms’ resilience to shocks. Digital technologies allow firms to integrate information systems into their operations, significantly reducing transaction costs. This has proven essential to respond to the large and widespread shock caused by the COVID-19 pandemic and highlights the role of technology as an engine for resilience to shocks, which is not confined only to health shocks and future pandemics, but also to climate shocks. Both climate change mitigation and adaptation require the adoption of technologies to reduce emissions and adapt to increasing climate shocks and rising temperatures.