Malaysia and China: The Trade Balances, Foreign Exchanges and Crises Impacts

Tze-Haw Chan ()

A chapter in International Trade - On the Brink of Change from IntechOpen

Abstract: China appears as the biggest trading partner for ASEAN economies, but it is inconclusive whether the complementarities between China and regional economies offset China's competitive threat. This study tries to assess if real exchange fluctuations and the demand-supply channels determine the Malaysia-China trade balances in the global crises era, 1997-2010. The finding generally supports the complementary role of China in the Malaysia-China bilateral trading. However, despite the long-run effect of real exchange on trade balances, the Keynesian demand channel was not uphold during and after the global financial crisis--due to the contractionary effect on Malaysian output. The Chinese inflation impact is also not evident following the foreign exchange shocks. Meanwhile, currency devaluation for exports gains is insufficient to sustain Malaysia output expansion against China. Further productivity growth in real and tradable sectors is essentially needed.

Keywords: trade balances; contractionary effect; global crises; VARX; VECMX (search for similar items in EconPapers)
JEL-codes: P33 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:ito:pchaps:109769

DOI: 10.5772/66977

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