The effects of exchange rate variability on Malaysia's disaggregated electrical exports

Abstract

PurposeThis paper aims to examine the influence of exchange rate variability on the demand for Malaysia's top five electrical exports as classified by Standard International Trade Classification (SITC) product groups.Design/methodology/approachThe autoregressive distributed lag (ARDL) modelling approach to co‐integration is employed in order to estimate the influence of exchange rate variability on export demand.FindingsThe empirical results indicate that foreign income and prices are important determinants of export demand for all of the five electrical exports, in both the long run and the short run, over the sample period 1990‐2001. More interestingly, this paper supports the view that exchange rate variability has an adverse effect on Malaysia's electrical exports.Research limitations/implicationsOne limitation of the study is the appropriateness of the ARDL modelling approach to examine the influence of exchange rate variability (which is stationary, I(0)) on trade behaviour such as export demand behaviour.Practical implicationsThis paper is important to policymakers for the design of both exchange rate and trade policies in order to promote export growth, which could lead to Malaysia's transition towards high‐technology industrialisation.Originality/valueThis paper examines the influence of exchange rate variability on the demand for Malaysia's top five electrical exports as classified by SITC product groups, information which is not available in the existing literature.