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Is there a long-run relationship between trade balance and terms of trade? The case of Malaysia

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  • Wong Hock Tsen

Abstract

This study investigates the relationship between trade balance and terms of trade in Malaysia. It employs commodity terms of trade and income terms of trade. The results show that there is a long-run relationship between trade balance and commodity terms of trade. However, there is no long-run relationship between trade balance and income terms of trade. Commodity terms of trade and income terms of trade are found respectively to Granger cause trade balance and not vice versa. Thus, a change in terms of trade will have an impact on trade balance in Malaysia. In the long run, the impact of terms of trade on trade balance is depending on the measure of terms of trade.

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  • Wong Hock Tsen, 2006. "Is there a long-run relationship between trade balance and terms of trade? The case of Malaysia," Applied Economics Letters, Taylor & Francis Journals, vol. 13(5), pages 307-311.
    • Handle: RePEc:taf:apeclt:v:13:y:2006:i:5:p:307-311
    DOI: 10.1080/13504850500393428
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    Cited by:

    1. David Matesanz & Guadalupe Fugarolas, 2009. "Exchange rate policy and trade balance: a cointegration analysis of the Argentine experience since 1962," Applied Economics, Taylor & Francis Journals, vol. 41(20), pages 2571-2582.
    2. Yasmina Guechari, 2012. "An Empirical Study on the Effects of Real Effective Exchange Rate on Algeria¡¯s Trade Balance," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 3(4), pages 102-115, October.
    3. Waliullah & Mehmood Khan Kakar & Rehmatullah Kakar & Wakeel Khan, 2010. "The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 15(1), pages 1-26, Jan-Jun.
    4. Talat Afza & Khalid Ahmed & Muhammad Shahbaz, 2016. "Does Harberger–Laursen–Metzler (HLM) Exist in Pakistan? Cointegration, Causality and Forecast Error Variance Decomposition Tests," Global Business Review, International Management Institute, vol. 17(4), pages 759-778, August.
    5. Shah, Anwar & Majeed, Muhammad Tariq, 2014. "Real Exchange Rate and Trade Balance in Pakistan: An ARDL Co-integration Approach," MPRA Paper 57674, University Library of Munich, Germany.
    6. Köse Nezir & Ünal Emre, 2024. "The Roles of the Terms of Trade and the Real Exchange Rate in the Current Account Balance," Economics - The Open-Access, Open-Assessment Journal, De Gruyter, vol. 18(1), pages 1-24.
    7. Drama, Bedi Guy Herve, 2010. "The Effects of Real Exchange Rate on Trade Balance in Cote d’Ivoire: Evidence from the Cointegration Analysis and Error-Correction Models," MPRA Paper 21810, University Library of Munich, Germany.
    8. Islam, Faridul & Tahir , Mohammad Iqbal & Shahbaz, Muhammad, 2013. "Income Terms of Trade and Trade Balance: The Long Run Evidence from Bangladesh," Bangladesh Development Studies, Bangladesh Institute of Development Studies (BIDS), vol. 36(2), pages 109-122, June.

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