Abstract

To investigate the response of real depreciation of ringgit on trade balance of Malaysia, researchers either employed trade data between Malaysia and the rest of the world or between Malaysia and each of her trading partners. Nevertheless, these studies did not provide a conclusive evidence of the effects of currency depreciation on the trade balance, particularly in the case of Malaysia with China. This paper considers 53 industries and investigates the short-run (J-curve pattern) and the long-run effects of the real depreciation of ringgit/yuan on the trade balance of each industry. We use quarterly data over the period of 1993Q1- 2009Q4. The results from bounds testing approach and error-correction modelling indicate that whilst depreciation of ringgit has short-run significant effects on the trade balance in majority of the industries, the short-run effects translate into the favorable long-run effects only in 11 of the 53 industries. The results also reveal that J-Curve phenomenon exists only in 10 industries.

This work is licensed under a Creative Commons Attribution 4.0 License.