Exploring characteristics of FTA use among SMEs in Malaysia

Menaka Arudchelvan (Asian Development Bank Institute Kasumigaseki Building 8F 3-2-5, Kasumigaseki, Chiyoda-ku, Tokyo 100-6008, Japan)
Ganeshan Wignaraja (Asian Development Bank 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines Email: [e-mail])

International Journal of Small and Medium Enterprises and Business Sustainability
Vol. 1 No. 1 (2015): July

The rapid proliferation of free trade agreements (FTAs) in Asia has sparked academic and policy interest in FTA preference use by SMEs. Using firm survey data, this paper evaluated the characteristics of SMEs that utilize FTA preferences in Malaysia, and the policy implications. The econometric analysis indicates that certain SME characteristics - firm size, a good understanding of FTA provisions, exposure to trade, and a central geographical location – are positively associated with the likelihood of using FTAs. The descriptive analysis suggested that key reasons for non-use of FTAs by SMEs are a lack of information on the implications of FTAs and the absence of FTAs with major trading partners. Concluding FTAs with major trading partners and improved business support for SMEs (though public and private service provision) will help facilitate SME use of FTAs.