Academic journal article Journal of Southeast Asian Economies

SME Participation in ASEAN and East Asian Integration: The Case of Cambodia

Academic journal article Journal of Southeast Asian Economies

SME Participation in ASEAN and East Asian Integration: The Case of Cambodia

Article excerpt

This study employs survey data of 201 firms to explore the impact of trade policy on small and medium size enterprises (SMEs) in Cambodia. The results show that more than half of the surveyed firms were aware of the ASEAN Economic Community (AEC) and larger firms tend to use FTAs more frequently than SMEs. The key reasons identified in the study for not using the FTAs were mainly due to a lack of knowledge and also due to the complexity on the submissions of the required FTA forms. The strong import linkages with ASEAN and East Asia (as compared to export linkages) suggest that Cambodian firms take advantage of sourcing for cheaper intermediate inputs from ASEAN and East Asian economies and then export the final products to the U.S. and EU markets through generalized system of preferences (GSP) and Everything But Arms (EBA) arrangements. The results of the survey indicate that the perception that the AEC has or would decrease their domestic and export sales as well as their profitability, and face more competition in local and foreign markets. On the other hand, they think the AEC has or would decrease import costs and enhance accessibility to intermediate inputs. The impacts are believed to occur through the reduction of import and export tariffs/duties, increase in custom procedures, standards and regulations, recognition of professional qualifications, improved investment processes, and better connectivity. The empirical results indicate that compared to non-users, the active FTA users appear to be larger firms, have higher labour productivity, and have experience with multiple export markets. They are also members of business associations and have higher skill intensity and technological capability. Firm size, higher labour productivity, access to business networks, active use of information and communications technology (ICT), having more experiences with multiple export markets, skilled human capital and technological capability are important factors for firms to use multiple FTAs and participate in regional integration.

Keywords: Cambodia, SMEs, regional economic integration, ASEAN Economic Community.

1. Introduction

Since the 1990s, the Cambodian economy has experienced rapid growth through its open and market-oriented policies to support trade and investment. The economy grew at the rate of 7 per cent per annum from 1994 to 2013, one of the fastest growing economies in ASEAN and Asia. This is partly because of its low initial base due to being ravaged by tremendous political conflicts prior to 1993.

Although the Cambodian economy is predominantly an agrarian one, it is structurally shifting towards manufacturing and services. As seen in Table 1, the output share of the agrarian sector has fallen over the years to around 30 per cent of GDP in 2014 from 50 per cent in 1990s. By contrast, manufacturing has grown rapidly in recent years by about 15 per cent per annum and it accounted for 27 per cent of GDP in 2014 compared to 15 per cent in 1990. To some extent however, it is dominated by just one industry--the garments and clothing industry, accounting for more than half of the manufacturing output and most of Cambodian exports. (ADB 2015)

Compared to neighbouring Thailand, there is an absence of large agricultural processing and home goods manufacturing that is typically observed in low-income economies. This is due to the proximity to large industrialized neighbours which can produce these goods more efficiently. Furthermore, the Cambodian economy is also dominated by a large services sector, namely tourism, restaurants and transport services.

The impact of economic liberalization of the 1990s as well as the granted Most Favoured Nation (MFN) and Generalized Scheme of Preferences (GSP) status is reflected in the high export and import shares of GDP for the Cambodian economy. The trade share of GDP jumped from 78 per cent in 1990 to 129 per cent in 2014, whereas foreign direct investment (FDI) increased from 4 to 10 per cent of GDP during the same period. …

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