Do the exchange rate fluctuations of trading partners affect the export competitiveness of a country? Malaysia as a case study

Yaacob, Nurul and Masih, Mansur (2017): Do the exchange rate fluctuations of trading partners affect the export competitiveness of a country? Malaysia as a case study.

Abstract

This paper focuses on the following questions: (i))Is the export of Malaysia cointegrated with the exchange rates of her trading partners?(ii)Do the exchange rates of the trading partners have a significant impact on the competitiveness of Malaysia’s exports? (iii)Is there a need for Malaysia to cut her profit mark up to increase exports when her trading partners’ currency depreciated against Ringgit? Our findings tend to give the corresponding answers to the above three questions:(i) Yes, the export of Malaysia is cointegrated with the exchange rates of her trading partners (ii) No, Malaysia’s export is found to be the most exogenous variable in the model thus making Malaysia’s export variable impacting the exchange rates. (iii) No, based on our quantitative analysis, policy makers are suggested not to be very sensitive to the exchange rate fluctuations of its trading partners ,since the partners’ exchange rate changes may have no significant impact on her exports. The findings have strong policy implications for a developing country like Malaysia.

• Item Type: MPRA Paper
• Language: English
• Keywords: export performance, exchange rates of trading partners, VECM, VDC, Malaysia
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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