The Effects of Currency Depreciation on Industry Trade Flows between Malaysia and China

ABSTRACT

This article investigates the impact of real depreciation of ringgit/yuan on Malaysian bilateral trade with her largest trading partner, China, over the period of 1987 to 2013. Using disaggregated import and export data from 39 industries, the results from the bounds testing approach to co-integration and error-correction model reveal that the real bilateral exchange rate has short- and long-run effects in the majority of the industries. However, the short-run effects shift into the long run in nine out of 20 import industries and in 13 out of 20 export industries. Most of these are small industries producing intermediate goods.