The Malaysian Real Trade Balance and the Real Exchange Rate

2018

Economic Systems

Previous research that considered the response of the trade balance between Malaysia and China to exchange rate changes used a linear model and did not find any significant long-run link. Suspecting that the results suffer from aggregation bias as well as ignoring nonlinear adjustment of the exchange rate, we consider the trade balance of 59 industries that trade between the two countries and use a nonlinear ARDL model to show that almost 1/3 rd of the industries are affected by ringgit depreciation against yuan, in an asymmetric manner. The largest industry which accounts for more than 25% of the trade is found to benefit from ringgit depreciation but not hurt from appreciation. In total, 15 industries that account for 40% of the trade enjoy this property.

Section: Introductionmentioning

confidence: 99%

Asymmetric effects of exchange rate changes on the Malaysia-China commodity trade

2018

Economic Systems

“… For a comprehensive review of articles related to Malaysia's trade balance see Bahmani‐Oskooee and Harvey (). In summary, Lal and Lowinger (), Duasa () and Yusoff (, ) report no significant link between the exchange rate and Malaysia's aggregate trade balance with the rest of the world. However, Wilson (), Onafowora () and Bahmani‐Oskooee and Harvey () who considered Malaysia's bilateral trade balances found some mixed results.…”

mentioning

confidence: 96%

Malaysia–Korea Commodity Trade: Are there Asymmetric Responses to Exchange Rate Changes?

J of App Econs and Policy

2017

We consider the trade balance of each of the fifty-five industries that trade between Malaysia and Korea and engage in asymmetry analysis. We find that the short-run effects of exchange rate changes are asymmetric in all industries. However, significant short-run cumulative or impact asymmetric effects are established only in thirteen industries and significant adjustment asymmetry in twenty-one industries. Finally, significant long-run asymmetric effects were evidenced in eighteen industries which included the two largest industries that engage in more than 20 per cent of trade between Malaysia and Korea. Clearly, the results are industry specific and should be extended to other countries.

“… It should be indicated that Lal and Lowinger (), Duasa () and Yusoff (, ) have used aggregate trade flows of Malaysia with the rest of the world and have found little support for the J‐curve effect. Bilateral trade flows of Malaysia with some of its partners have been considered by Wilson (), Onafowora () and Bahmani‐Oskooee and Harvey (), again with mixed findings.…”

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confidence: 99%

Asymmetric Effects of Exchange Rate Changes and the J‐curve: New Evidence from 61 Malaysia–Thailand Industries

Review Development Economics

2016

Research on the impact of currency depreciation on the trade balance is now moving in a new direction by incorporating nonlinear dynamic adjustment of the exchange rate and by using a nonlinear approach to error-correction modeling and cointegration. Using these advances, researchers find not only more evidence of the J-curve effect, but also new evidence of asymmetric effects of exchange rate changes on the trade balance. We contribute to this line of research by using monthly trade flow data from 61 twodigit industries that trade between Malaysia and Thailand, and show that not only does currency depreciation have favorable effects on the trade balance of more industries, but the long-run effects are asymmetric in 26 out of 61 cases. In line with current literature, our nonlinear model performs much better than the linear model when industry level data are used.