The impact of exchange rate on tomato trade: Evidence from Malaysia

Abstract

Economists recognized that exchange rate have a significant impact on trade. In this study we employed the Autoregressive Distributed Lag (ARDL) bounds testing procedure to analyze the impact of exchange rate on tomato's export and import for Malaysia. The period of study covers 1997-2007 using quarterly data. Real Effective Exchange Rate (REER) was used rather than conventional exchange rate since this study covers the trade between Malaysia and the rest of the world. Our results indicate that both the export and import of tomatoes exhibit significant long-run relationships with REER. Causal effects in both cases are bidirectional. However, while the sign is economically correct for the relationship between REER and export, the same cannot be said for the relationship between import and REER.