In this paper, we investigate whether pre-pandemic adoption of digital technologies helped small and medium enterprises (SME) survive during the pandemic, and whether this effect differs between urban and rural areas.
The pandemic increased the reliance on digital tools, and as personal contact was restricted, led to expectations of the decline of cities. We combine the Longitudinal Small Business Survey with the Business Structure Database to build a panel of British SMEs from 2015 to 2022. Survival models show that use of different digital technologies increased survival, but the effect is concentrated in urban areas. In urban areas, this effect is comparable in size to that of government Covid subsidies, while in rural areas subsidies are significantly more effective at reducing business exit.
In urban areas, increased survival from expanding SME’s digitalisation would increase aggregate productivity, while in rural areas, digitalisation would help the least productive firms survive.
The results show that the benefits of digitalisation are not evenly spread among SMEs and policy responses to crises should take these urban-rural differences into account.
Authors Sabine D’Costa, Carolin Ioramashvili