Effect of exchange rate volatility on industry trade flows between Malaysia and China

Abdorreza Soleymani and Soo Y. Chua

The Journal of International Trade & Economic Development, 2014, vol. 23, issue 5, 626-655

Abstract: This paper investigates the impact of ringgit/yuan volatility on Malaysian trade with her largest trading partner, China. The short- and long-run impacts are estimated using bounds testing approach to cointegration analysis and disaggregated bilateral trade data by industry over the period of 1985-2010. Specifically, we considered a total of 151 importing and 24 exporting industries in Malaysia that traded with China. Our finding indicates that cointegration existed in 94 Malaysian import industry models and 16 Malaysian export industry models. Among these cases, exchange rate volatility has short-run effects on majority of the models. However, the short-run effects shift into the long-run effects in 46 out of 69 industries in import models and 5 out of 10 industries in export models. Results indicate that the exchange rate uncertainty has positive effects on majority of these industries.

Date: 2014
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DOI: 10.1080/09638199.2013.803146

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