Effect of Financial Crisis on SME's Bilateral Trade Relations in Asia

Recent financial crises have particularly impinged on trade through reduced provision and high costs of trade finance. Problems in finance will normally impact business operations, and will especially affect small- and medium-sized enterprises (SMEs) more. In addition, large companies (LMEs) have gone out of businesses, since the latest global financial crisis currently spreading around the world has exerted negative impacts on large industries. For example, a number of biotech companies have been significantly weakened as the investment shortage resulting from the financial crisis forced them to scale down all their activities (Zhang, 2006). In this situation, the role of SMEs has become highlighted in both internal and international business activities. To explore the relationship between financial crisis, SMEs and international trade, through some evidence from Asia, we specify empirically a trade gravity model based on the panel data observations of the selected countries in Asia. The model is estimated by the panel data approach over the period 1998-2008. The empirical results do not confirm a significant effect of the financial crisis on the SMEs bilateral trade relations between the selected Asian trading partners. The implication is that the enhancement of SMEs activities may be a need for Asian economies towards adjusting financial crisis effect and a better-off condition in business environment.