Policies for Inclusive Recovery

18 February 2021 |
  • The COVID-19 pandemic has had large impacts on business dynamism. Firm entry has rebounded after the drop experienced during the first lockdowns of early 2020. Yet, the recovery in entry rates is highly heterogeneous across countries, with possible long-term implications for employment and output growth. Entry in industries with higher information and communication technology (ICT) intensity and a higher propensity for telework was less hit during the lockdowns, while that in industries relying more heavily on face-to-face contact with customers was more significantly hit.
  • Financial support to firms’ liquidity and temporary changes to insolvency procedures have been effective in reducing bankruptcies, on average, by more than 30% relative to the pre-pandemic period. Policy measures may have protected viable and productive firms and avoided the systemic risks posed by a wave of bankruptcies, but at the risk of potentially keeping non-viable (the so-called zombie) firms afloat.
  • Governments should implement a balanced strategy to phase out emergency support policies. A gradual approach focusing on restoring the equity of distressed firms, encouraging timely debt restructuring and improving the efficiency of liquidation procedures should be pursued, with the aim of fostering resource reallocation.
  • To support a strong and resilient recovery, policy interventions should boost technology diffusion, provide the right conditions and incentives for start-ups, and ensure business-friendly framework conditions to enable experimentation and resource reallocation, while supporting transitions into new jobs, especially for more disadvantaged groups of workers.

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