Impacts of Openness towards Exchange Rate in Malaysia

Yen, Wen Jing (2021) Impacts of Openness towards Exchange Rate in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

Over the decades, the impact of openness has been discussed among the policy makers and economist, not only Malaysia, but other countries as well. Among the research, trade openness and net foreign assets are one of the most popular topic. There are plenty of result which included positive and negative impact and even uncertain impact. This paper is aimed to examine the impact of openness towards exchange rate in Malaysia during year 1975 – 2020, on annual basis. The dependent variable is exchange rate while independent variables is gross domestic product, net foreign assets, foreign direct investment and trade openness. Vector Error Correction Model (VECM), Johansen-Juselius co-integration test and Granger Causality test were applied to determine the impact of openness towards exchanged rate in Malaysia. The empirical result shows that there is long run relationship among the variables. In this study, there are few unilateral and bilateral relationship among the variables. In this study, it is suggested that the government should enhance the managing of trade openness, foreign direct investment and policies in stabilize the exchange rate in Malaysia.