Abstract
This study investigates the relationship between the terms of trade and trade balance for Malaysia with its three major trading partners namely China, Japan and Singapore using the S-curve. The lead and lag cross-correlations between the terms of trade and the trade balance resemble a horizontal S-curve. We evaluate the S-curve in 70 industries over the period 1974–2009. Initial results with aggregated bilateral trade data did not show any S-curve pattern. However, by using the industry level data, we found the existence of the S-curve pattern in some of these industries. Most of these are small and intermediate goods industries. Finally, our findings support that durables are more sensitive to real exchange rate changes than non-durables only in the case of China.
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