A study on the trade balance between Malaysia and China: An ARDL cointegration analysis

This paper empirically examines the short-term and long-term relationship between Malaysia’s trade balance, real exchange rates (RER), industry production index (TPT), Malaysia’s consumer price index (MCPT) and China’s consumer price index (CCPT) for the period January 2000 to September 2017. The Malaysia’s trade balance is regarded as an explained variable while the MYR-RMB, TPT, MCPT and CCPT will be regarded as explanatory variables. The Autoregressive Distributed Lag (ARDL) cointegration test is employed to estimate the long-run relationship between China and Malaysia. Then the Error-Correction model and the error correction term would explain the speed of adjustment in restoring equilibrium in the dynamic model referred to in this paper. The finding shows that the exports in Malaysia would benefit from the Renminbi real appreciation and the increase in China’s inflation.