China-Malaysia’s long run trading and exchange rate: complementary or conflicting?

Tze-Haw Chan () and Chee-Wooi Hooy

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the long run dynamics of exchange rate and bilateral export-import flows between China and Malaysia. Our analysis contributed in using high frequency monthly data for the recent period from January 1990 to January 2008, based on the Autoregressive Distributed Lag bound testing procedure, the fully modified OLS, dynamic OLS and rolling estimations, as well as the generalised impulse response (IRF) and variance decomposition (VDC) analyses. Our empirical findings reveal that the Marshall-Lerner condition holds in the long run but the export-import demands do not adhere to the J-curve pattern. And, expansionary effect is of greater evidence for Malaysia due to real exchange shocks but inconclusive for China. More important, the VDC results imply that China-Malaysia trade is along the sustainable path. In brief, the study supports for the complementary role of China instead of conflicting (competing) features in the China-Malaysia bilateral trading

Keywords: Exchange rates; J-curve; Marshall-Lerner Condition; ARDL Bound Test; Rolling; FMOLS; DOLS (search for similar items in EconPapers)
JEL-codes: C51 F31 F42 (search for similar items in EconPapers)
Date: 2011-06-11
New Economics Papers: this item is included in nep-int and nep-sea
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