Firm-level impacts and recovery dynamics following a public health crisis: Lessons from China’s SARS experience

As the world recovers from the COVID-19 pandemic, the timeline for full economic recovery and the long-term effects of the crisis remain uncertain, and how to respond to future pandemics poses ongoing challenges. This study draws on China’s experience, a country that has suffered severely from two major public health crises in the 21st century, to provide insights into the recovery process. Focusing on the 2003 Severe Acute Respiratory Syndrome (SARS) epidemic, we examine its impact on firm performance and subsequent recovery dynamics. To establish a robust causal relationship, we employ a difference-in-differences (DD) estimation strategy complemented by extensive robustness checks. Using firm-level data from China’s manufacturing sector, we find that both sales and output experienced significant short-term declines but quickly rebounded to pre-epidemic levels. Further analysis reveals that these adverse effects were primarily driven by supply-side disruptions rather than demand-side shocks, leading to a slower recovery trajectory. Heterogeneity analyses indicate that the impacts of SARS and the pace of recovery varied substantially by firm size, ownership structure, and local internet penetration. These findings offer valuable insights into the recovery dynamics of manufacturing firms in the aftermath of a public health crisis.