Exchange-rate variability and industry trade flows between Malaysia and Japan

This research investigates the exchange-rate risk sensitivity of Malaysian bilateral trade flows with its important trading partner, Japan. To this end, bounds testing approach to co-integration is applied using industry level data over the monthly period 2000-2013. Findings suggest that above the one-third of the total co-integrated export (43.86%) and import (34.54%), industries experiences the ringgit/yen variability effect in the short run. However, this effect sustains in relatively less number of export (14.03%) and import (32.73%) industries in the long run. It is interesting to note that exchange-rate risk boosts trade flows in the majority of these affected industries.