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What Determines the Adaptation of Enterprises to COVID-19 in CAREC Member Countries: Empirical Evidence from Azerbaijan, Georgia, Kazakhstan, and Mongolia

This study empirically investigated the factors affecting firms’ ability to adjust production in response to the COVID-19 outbreak. This study used firm-level survey data from the Enterprise Survey implemented by the World Bank Group, including a standard Enterprise Survey (Baseline) and two waves of Follow-up Surveys conducted in 2020 and 2021, which included questions related to COVID-19 and firm behavior during the pandemic. We used data from four CAREC member countries: Azerbaijan, Georgia, Kazakhstan, and Mongolia. Using a probit model, we studied how different factors, including firm characteristics and government policy, affected the probability that a firm would be able to adjust its activities to the changed conditions. The results showed that firms which successfully adapted to the COVID-19 crisis were younger, foreign firms that had been innovative in the recent past, with female managers, a formal firm strategy with key performance indicators, and their own website. size, age, location, industry, and managerial and ownership differences. Firm-specific explanatory variables include size, age, location, and industry of the observed firm. We employ dummy variables for size and industry of firms retrieved from the respective categorical variables. We use four dummy variables for different firm sizes—micro, small, medium, and large—and five dummies to indicate the industry in which the firms operate. Firm age is measured by the number of years since the firm began its operations. The dummy variable for firm location is 1 if the firm is located in the official capital city, and 0 otherwise. We also include country dummies to identify differences in firm adaptability across countries. CAREC member countries: Azerbaijan, Georgia, Kazakhstan, and Mongolia. Using a probit model, we assessed how different factors, including firm characteristics and government policy, affected the probability that a firm would be able to adjust its activities to the changed conditions. The results indicated that firms which adapted to the COVID-19 crisis tended to be younger firms with foreign investment, that were innovative in the recent past, with a female manager, a formal firm strategy with key performance indicators, and having its own website. Overall, the findings that, at later rounds of the survey, firms were adapting to the new realities. Innovation and firm strategy are important, and government support also important, its effect appeared later 2021).