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Sustainability of External Imbalances: The Case of Malaysia

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  • Evan Lau

    (Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia)

  • Ahmad Zubaidi Baharumshah

    (Department of Economics, Faculty of Economics and Management, Universiti Putra Malaysia, 43400 UPM Serdang, Selangor, Malaysia)

Abstract

The understanding of the sustainable external imbalances over the 1961-2001 for Malaysia is presented in this paper. The empirical results clearly show that inflows and outflows share a common stochastic trend prior to the 1997 Asian crisis while in the post-crisis period the current account surpluses are on an unsustainable path. Our findings highlight the important role of imports (mainly intermediate inputs) in exports. For an economy that depends on export promotion for its growth process, imports are important in restoring external imbalances to its sustainable steady state path. As illustrated by the recent crisis, the large depreciation of the ringgit contributed to a decline in imports and for an economy that is highly dependent on imported capital, this means an economic slowdown.

Suggested Citation

  • Evan Lau & Ahmad Zubaidi Baharumshah, 2003. "Sustainability of External Imbalances: The Case of Malaysia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 48(01), pages 61-80.
    • Handle: RePEc:wsi:serxxx:v:48:y:2003:i:01:n:s0217590803000591
    DOI: 10.1142/S0217590803000591
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    References listed on IDEAS

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    1. Milesi-Ferretti, Gian Maria & Razin, Assaf, 1996. "Current Account Sustainability: Selected East Asian and Latin American Experiences," CEPR Discussion Papers 1509, C.E.P.R. Discussion Papers.
    2. Jacob Frenkel & Assaf Razin, 1996. "Fiscal Policies and Growth in the World Economy," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262561042, April.
    3. Mr. Olumuyiwa S Adedeji, 2001. "The Size and Sustainability of Nigerian Current Account Deficits," IMF Working Papers 2001/087, International Monetary Fund.
    4. Mr. Jonathan David Ostry, 1997. "Current Account Imbalances in AsEAN Countries: Are they a Problem?," IMF Working Papers 1997/051, International Monetary Fund.
    5. Steven Radelet & Jeffrey Sachs, 1998. "The Onset of the East Asian Financial Crisis," NBER Working Papers 6680, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Baharumshah, Ahmad Zubaidi & Lau, Evan, 2007. "Regime changes and the sustainability of fiscal imbalance in East Asian countries," Economic Modelling, Elsevier, vol. 24(6), pages 878-894, November.
    2. Loesse Jacques Esso, 2010. "Re-Examining The Finance-Growth Nexus: Structural Break, Threshold Cointegration And Causality Evidence From The Ecowas," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 35(3), pages 57-79, September.
    3. Le, Thai-Ha, 2015. "Do soaring global oil prices heat up the housing market? Evidence from Malaysia," Economics Discussion Papers 2015-8, Kiel Institute for the World Economy (IfW Kiel).
    4. Anoruo, Emmanuel & Kumar, Saten & DiPietro, Bill, 2007. "A Cointegration Analysis of Investment Output Ratio in Bangladesh," MPRA Paper 19338, University Library of Munich, Germany.
    5. Esso, Loesse Jacques, 2010. "Threshold cointegration and causality relationship between energy use and growth in seven African countries," Energy Economics, Elsevier, vol. 32(6), pages 1383-1391, November.
    6. repec:cii:cepiei:2012-q3-131-4 is not listed on IDEAS
    7. Loesse Esso, 2012. "Re-examining the saving-investment nexus: threshold cointegration and causality evidence from the ECOWAS," Economic Change and Restructuring, Springer, vol. 45(3), pages 193-220, August.
    8. Lau, Evan & Baharumshah, Ahmad Zubaidi & Haw, Chan Tze, 2006. "Current account: mean-reverting or random walk behavior?," Japan and the World Economy, Elsevier, vol. 18(1), pages 90-107, January.
    9. Le, Thai-Ha & Chang, Youngho, 2013. "Oil price shocks and trade imbalances," Energy Economics, Elsevier, vol. 36(C), pages 78-96.

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