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

Authors: Bahmani-Oskooee, Mohsen; Harvey, Hanafiah

Source: Applied Economics, Volume 38, Number 11, 20 June 2006 , pp. 1279-1286(8)

Publisher: Routledge, part of the Taylor & Francis Group

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Abstract:

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.

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036840500405490

Affiliations: The Center for Research on International Economics and Department of Economics, The University of Wisconsin-Milwaukee, WI 53201, USA

Publication date: June 20, 2006

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