Exchange Rate Fluctuations and Trade Balance Dynamics: Evidence from ASEAN-5 Countries

Nadunjalian, Hahreene (2025) Exchange Rate Fluctuations and Trade Balance Dynamics: Evidence from ASEAN-5 Countries. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study investigates the impact of exchange rate (NER) fluctuations on the trade balances of the ASEAN-5 countries, encompassing Malaysia, Singapore, Indonesia, Philippines, and Thailand. The research employs a panel data analysis methodology which incorporates panel unit root tests and cointegration methods, specifically the Pedroni, Kao, and Dumitrescu-Hurlin tests, along with the PVAR and GARCH(1,1) models, to elucidate the dynamic relationships between NER and TB while accounting for additional variables such as gross domestic product (GDP), money supply (MS), and inflation (INF). The findings reveal a predominantly positive relationship between NER fluctuations and TB, indicating that stable exchange rates are essential for enhancing trade performance in the ASEAN-5 economies. Furthermore, the analysis highlights the indirect influences of GDP, MS, and INF on TB, emphasizing the need for comprehensive policy measures. Key recommendations include implementing structural reforms to boost GDP growth, adopting tailored monetary policies to manage MS, and establishing effective inflation control strategies. This research contributes to the understanding of the intricate economic dynamics within the ASEAN-5 region and provides actionable insights for policymakers aimed at improving trade performance through stable NER and sound economic policies. Future studies are encouraged to address the limitations identified, such as the reliance on annual data and the exclusion of potential influencing factors, to enrich the understanding of trade dynamics in this context.