The impact of COVID-19 pandemic on the small firms in developing countries

    Funded by GLM|LIC- DFID

  • Asad Islam, CDES, Monash University
  • Margaret Triyana, Wake Forest University
  • Xing Xia, Yale-NUS College

Background and objectives

The COVID-19 pandemic has dramatic ramifications around the world. Widely adopted lockdown and social distancing measures. Although vital in containing the disease, these measures have also precipitated an unprecedented economic crisis. Despite many countries relaxing the lockdown, economic activity is expected to remain subdued for some time, particularly so for low and middle-income countries (LMICs). Bangladesh, our country of focus in this study, started relaxing the lockdown measures in early June, but restricted movement due to recent spikes in COVID-19 cases has hit Small and Micro Enterprises (SMEs) especially hard. These SMEs account for a large portion of production and employment in LMICs. This research project seeks to examine the impact of the pandemic on SMEs and their workers in Bangladesh.

This proposed project takes advantage of an ongoing project, implemented by BRAC, with funding support from the European Commission. The research team previously collaborated with BRAC to design and evaluate an intervention in light engineering (LE) firms using a large-scale randomized controlled trial (RCT) started in 2017. The LE sector is one of the largest sub-sectors of SMEs with 2 million workers, contributing to 2% of GDP.

In our initial project, we analyse the impact of intensive decent-work-environment training on 2200 light engineering (LE) firms. In the same time frame, we surveyed 1600 young workers who participated in a decent-work-environment training program through BRAC. This proposed research project will expand the scope of these current projects. The RCT consists of the following treatment arms: T1: Managers/owners of firms receiving intensive training on OHS; T2: OHS + business training and financial linkages; and C: firms in the control group receiving no training. For the evaluation, we conducted a firm survey in November-December 2019.

Our proposed research study has two main objectives.

  1. We seek to understand the current situation of these SMEs and their workers and compare it with the pre-COVID19 period. We will examine whether the effects of the lockdown measures vary by firms’ decent-work-environment training status.
  2. We will examine the longer-term impacts of the COVID-19 pandemic on firm survival, growth, investment, and profitability.

We will compare these outcomes with information already collected in 2019 before the pandemic.

Research design

We will (re)survey all 2200 LE firms in our RCT. We will also survey 1600 young workers who took a training program from BRAC in the same time frame to examine the effects of the pandemic on workers. The survey will be conducted by our collaborating partner, BRAC (its research wing, BRAC Institute of Governance and Development, BIGD).

Two waves of phone surveys will be conducted. The survey questions will cover three broad areas:

  1. health and safety measures taken by the firm or firm manager that aims at minimizing the risk of COVID-19 transmission.
  2. firms’ economic behavior and economic outcomes during and after the lockdown (e.g. firm revenue, output, borrowing lending, number of days in production, number of days shut down, and the number of workers retained during).
  3. workers’ income/wage losses during and after the lockdown.

In addition to measuring these important outcomes, we also aim to study how each of these outcomes differ by the initial treatment status. We will compare firms that received decent-work-environment training to those that did not and answer questions such as:  Are treated firms more likely to adopt safety measures that minimize the transmission of COVID-19? Do treated firms fare better economically during and after the pandemic? Do workers in treated firms enjoy better physical and mental wellbeing during the pandemic?

Potential policy implications

Our project addresses both labor and health policies in the face of this unprecedented health and economic crises. We will examine the role of OHS training, business training, and job training on both firms’ and workers’ response. The representativeness of our sample in a large sub-sector of the informal economy and the treatment arms that involve OHS make this project especially policy relevant to examine the effects of COVID-19 on both firms and workers. Findings will inform the Bangladeshi government in directing stimulus and other measures that have already been announced to target SMEs to stimulate the economy.