["Review of Development Economics, EarlyView. ", "\nABSTRACT\nThis paper seeks to explain the resilience and rapid recovery of MSMEs from COVID‐19‐induced losses. Using data from 216 MSMEs across 16 BSCIC industrial estates in Bangladesh, we find that “local market orientation” played a crucial role for a large share of MSMEs in weathering and recovering from the crisis. The findings suggest that this local market exposure helped firms continue production using locally sourced raw materials and sell products in nearby local markets. A robust analysis using IV regressions supports the findings. This localization insulated firms against a supply shock caused by the COVID‐19 pandemic during lockdowns. The results underscore the importance of cluster‐based industrialization in developing countries seeking to harness the potential of local economies and agglomeration economies.\n"]