How Does COVID-19 Affect Digital Innovation and Transformation?

Abstract

I investigate how the COVID-19 crisis affects innovation activity. I measure the effect of digital resilience on innovation activity in response to the unexpected COVID-19 pandemic that caused the severe lockdown. I find that the total patent applications of industries and firms with digital resilience were not affected by the crisis. However, digital innovation measured by patents related to non-face-to-face and ‘untact’ significantly increased. Workforce did not change for firms with digital resilience before the crisis. Furthermore, the increase in card transactions online provides evidence on digital transformation in economies. The results are driven by small firms, suggesting that small innovative firms found opportunities in times of the crisis. Investing in digital resilience for start-up innovative firms could generate significant economic benefits during the crisis.