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How sensitive are Malaysia's bilateral trade flows to depreciation?

  • Mohsen Bahmani-Oskooee
  • Hanafiah Harvey

In an attempt to assess the impact of currency depreciation on the trade balance, recent studies are employing disaggregated trade data to avoid aggregation bias. However, since import and export prices are not available at disaggregated level, recent studies are using export and import values rather than their volumes so that they can establish direct relation between inpayments and the exchange rate as well as between outpayments and the exchange rate. This study explores the experience of Malaysia. Bilateral inpayments and outpayments models are estimated between Malaysia and her 14 trading partners using quarterly data and bound testing approach to cointegration. The results show that while real depreciation of the ringgit has short-run effects, in the long-run it increases Malaysia's inpayments from only five trading partners.

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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 38 (2006)
Issue (Month): 11 ()
Pages: 1279-1286

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Handle: RePEc:taf:applec:v:38:y:2006:i:11:p:1279-1286
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  1. Hakan Berument & Nergiz Diner, 2005. "Denomination Composition of Trade and Trade Balance : Evidence from Turkey," Working Papers 0510, Department of Economics, Bilkent University.
  2. Mohsen Bahmani-Oskooee, 2001. "Nominal and real effective exchange rates of middle eastern countries and their trade performance," Applied Economics, Taylor & Francis Journals, vol. 33(1), pages 103-111.
  3. Bahmani-Oskooee, Mohsen & Niroomand, Farhang, 1998. "Long-run price elasticities and the Marshall-Lerner condition revisited," Economics Letters, Elsevier, vol. 61(1), pages 101-109, October.
  4. Dragan Miljkovic & Rodney Paul & Roberto Garcia, 2000. "Income effects on the trade balance in small open economies," Applied Economics, Taylor & Francis Journals, vol. 32(3), pages 327-333.
  5. Jonathan Eaton & Akiko Tamura, 1995. "Bilateralism and Regionalism in Japanese and U.S. Trade and Direct Foreign Investment Patterns," NBER Working Papers 4758, National Bureau of Economic Research, Inc.
  6. Nadenichek, Jon, 2000. "The Japan-US trade imbalance: a real business cycle perspective," Japan and the World Economy, Elsevier, vol. 12(3), pages 255-271, September.
  7. Bahmani-Oskooee, Mohsen & Goswami, Gour Gobinda, 2004. "Exchange rate sensitivity of Japan's bilateral trade flows," Japan and the World Economy, Elsevier, vol. 16(1), pages 1-15, January.
  8. Swarnjit Arora & Mohsen Bahmani-Oskooee & Gour Goswami, 2003. "Bilateral J-curve between India and her trading partners," Applied Economics, Taylor & Francis Journals, vol. 35(9), pages 1037-1041.
  9. Stephen Kyereme, 2002. "Determinants of United States' trade balance with Australia," Applied Economics, Taylor & Francis Journals, vol. 34(10), pages 1241-1250.
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