Empowering SMEs export by export promotion policy

Abstract

The low SME participation in international trade has prompted government intervention intended to increase SME involvement in global markets. In 2017, the Indonesian government introduced a policy in which SMEs were granted exemptions from import duties on imported raw materials intended for export-oriented production. Eligibility for this incentive is contingent upon SMEs being registered as import duty exemption beneficiaries at their convenience, thereby resulting in variations in the timing of SME utilization of this policy. In this empirical study, I employed difference-in-differences methods with variations in the treatment timing to explore the impact of implementing the duty exemption policy on SME export and import activities. I used the Indonesian Customs dataset from 2015 to 2022. The results revealed a statistically significant increase in both exports and imports by SMEs as a consequence of the duty exemption policy. However, it is essential to highlight that the policy does not have a lasting impact on exports in the long run, whereas its impact on imports weakens over time. These findings carry implications for government policymaking, particularly with regard to enhancing the sustained performance of SMEs’ exports in the long run.