Do the trading partners’ exchange rates impact the export performance of a country? evidence from Malaysia

Izyani, Nurul and Masih, Mansur (2018): Do the trading partners’ exchange rates impact the export performance of a country? evidence from Malaysia.

Abstract

This paper focuses on the following three major questions: (i))Is the export of Malaysia co-integrated 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 advised 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

References

Abesinghe, T and Tan L.Y (1998), Exchange Rate Appreciation and Export Competitiveness: The case of Singapore , Journal of Applied Economics, 30, 51-55.

Aboustatit, R (2005), “Are exports the engine of economic growth? An application of cointegration and causality analysis for Egypt”, Economic Research Working Paper Series, Tunis : African Development Bank.

Asteriou, D. and Hall, S. G. (2007), Applied Econometrics; A modern approach, Revised edition, Palgrave Macmillan, New York.

Duasa, J (2007), Determinants of Malaysian Trade Balance : An ARDL Bound Testing Approach, Journal of Economic Cooperation, 28(3), 21-40.

Engle, R. F., and Granger, C. W. (1987). Cointegration and error-correction representation, estimation, and testing. Econometrica, 55(2), 251–276.

Kutty, G. (2010). The Relationship between Stock Market Prices and Exchange Rate. North American Journal of Finance and Banking Research , 4 (4), 1-12.

Masih, R and Masih, A. M (2001), Long and Short Term Dynamic Causal Transmission Amongst International Stock Markets, Journal of International Money and Finance, 20(4), 563-587.

Pesaran, M.H. and Y. Shin (2002). Long Run Structural Modeling. Econometric Reviews, 21(1), 49-87.

Phylasktis, K. and Ravazzolo, Z (2005). Stock prices and exchange rate dynamics. Journal of International Money and Finance, 24 (7), 1031 -1053.

Tsen, W. H. (2006), Granger causality tests among openness to International Trade, Human Capital Accumulation and Economic Growth in China: 1952 -1999, International Economic Journal, 20(3): 285-302.