External Shock, Stimulus Policy, and Economic Resilience of Small and Micro Businesses: Evidence from COVID-19 Pandemic in China

Abstract

Abstract How resilient SMBs are in the COVID-19 pandemic? We aim to answer this question using sales data from 35,000 brick-and-mortar small and micro businesses (SMBs) in 353 Chinese cities before, during, and after the lockdown period of COVID-19, and examine the economic resilience of SMBs under the impact of governmental stimulus policies. We find that unlike large business entities, SMBs’ post-shock resilience is weak, as sales of SMBs do not recover to pre-shock level. Resilience of SMBs in towns with unitary or small-scale economic structure is stronger than that in larger cities, indicating that stickiness of consumption behavior significantly influences recovery. In the medium term, resilience of SMBs is stronger where local governments implement offline consumption stimulus policies and this effect is more salient in larger cities. In the long run, SMBs have not shown resilience, indicating pandemic-driven digital transformation of retailing has lasting effect on offline SMBs. Our empirical findings are helpful for policymakers worldwide to understand economic resilience and recovery path of SMBs facing external shock, to design targeted stimulus policies to help SMBs survive during crisis, and to pay more attention of providing digital transformation infrastructures so that SMBs could truly strengthen their sustainability in this new era of digital economy.