Real Exchange Rate and Trade Balance Relationship: An Empirical Study on Malaysia

Yuen-Ling Ng, Wai-Mun Har, Geoi-Mei Tan

Abstract


This paper attempts to identify the relationship between the real exchange rate and trade balance in Malaysia from year 1955 to 2006. This study uses Unit Root Tests, Cointegration techniques, Engle-Granger test, Vector Error Correction Model (VECM), and impulse response analyses. The main findings of this paper are: (i) long run relationship exists between trade balance and exchange rate. Other important variables that determine trade balance such as domestic income shows a long run positive relationship between trade balances, and foreign income shows a long run negative relationship (ii) the real exchange rate is an important variable to the trade balance, and devaluation will improve trade balance in the long run, thus consistent with Marshall-Lerner condition (iii) the results indicate no J-curve effect in Malaysia case.

Full Text: PDF

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Business and Management   ISSN 1833-3850 (Print)   ISSN 1833-8119 (Online)

Copyright © Canadian Center of Science and Education

To make sure that you can receive messages from us, please add the 'ccsenet.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.