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The effect of exchange rate on bilateral trade balance: new evidence from Malaysia and Thailand


Baharumshah, Ahmad Zubaidi (2001) The effect of exchange rate on bilateral trade balance: new evidence from Malaysia and Thailand. Asian Economic Journal, 15 (3). pp. 291-312. ISSN 1351-3958; ESSN: 1467-8381


This paper attempts to identify the major economic factors that influence the bilateral trade balances of Malaysia and Thailand with the US and Japan. To this end, an unrestricted VAR model was estimated using quarterly frequency data from 1980: I to 1996: IV. The Johansen results indicate a stable long-run relation between trade and three macro variables: exchange rate, domestic income and foreign income. The main findings of this paper are: (i) the real effective exchange rate is an important variable in the trade balance equation and devaluation improves the trade balances of both economies in the long-run; (ii) the other important variables that determine trade balance include domestic and foreign incomes; (iii) the results indicate no J-curve effect and causal run from exchange rate to trade balance, (iv) the real effects of devaluation are distributed over a period of eight to nine quarters.

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Additional Metadata

Item Type: Article
Divisions: Faculty of Economics and Management
DOI Number: https://doi.org/10.1111/1467-8381.00135
Publisher: Blackwell Publishers
Keywords: Exchange rate; Trade balance; Devaluation; Cointegration
Depositing User: Nabilah Mustapa
Date Deposited: 14 Sep 2015 00:37
Last Modified: 14 Sep 2015 00:37
Altmetrics: http://www.altmetric.com/details.php?domain=psasir.upm.edu.my&doi=10.1111/1467-8381.00135
URI: http://psasir.upm.edu.my/id/eprint/40152
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