Dynamic Relationship Between Trade Balance and Macroeconomic Elements: Empirical Evidence From Emerging Economies in Malaysia
Vikneswaran Manual1, Wai San2
1Vikneswaran Manual, Working, School of Accounting, Finance and Quantitative Studies, Asia Pacific University Malaysia.
2Wai San, Working, School of Accounting, Finance and Quantitative Studies, Asia Pacific University Malaysia.
Manuscript received on 04 February 2019 | Revised Manuscript received on 17 February 2019 | Manuscript Published on 19 February 2019 | PP: 47-54 | Volume-7 Issue-5S January 2019 | Retrieval Number: ES2124017519/19©BEIESP
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© The Authors. Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Abstract: Malaysia is very much dependent on foreign trade. As such it is critical to study the determinants of trade balance in Malaysia in order to improve trade balance and in turn, stabilize economy. Exports is one of the most important elements that drive Malaysia’s GDP ver the years. This study investigates the relationship of trade balance with other macroeconomic elements such as domestic income, exchange rates, inflation rates and money supply, covering a time span of 15 years from 2000 to 2015. This paper employs Autoregressive Distributed Lag (ARDL) model to examine the short run and the long run relationship between trade balance and other elements. Granger Causality also performed to investigate the relationship between the variables. The results indicate that domestic income, inflation rates and exchange rates appear to be significant that affect the trade balance while money supply turn out to be affecting the trade balance insignificantly. Future researchers can use other econometric measuring techniques such as Vector Error Correction or Ordinary Least Square method to investigate the relationship between macroeconomics with trade balance. Moreover, future research is also suggested to include other variables such as foreign income, government expenditure, and household consumption to explore more on the determinants of trade balance and produced a more refined result.
Keywords: Trade Balance, Malaysia, Autoregressive Distributed Lag (ARDL).
Scope of the Article: Foundations Dynamics