The Impact of Exchange Rate Fluctuations on Imports and Exports in Malaysia

Low, Sin Wen (2025) The Impact of Exchange Rate Fluctuations on Imports and Exports in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University of Management and Technology.

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Abstract

This study examines the impact of exchange rate fluctuations on Malaysia’s imports and exports over the period 1980 to 2023. Given Malaysia’s strong reliance on international trade, the analysis incorporates additional macroeconomic variables namely inflation, gross domestic product (GDP), and foreign direct investment (FDI) to provide a more comprehensive perspective. The Autoregressive Distributed Lag (ARDL) approach is applied to capture both short- and long-run dynamics. The findings indicate that depreciation in the real effective exchange rate (REER) tends to enhance exports but increases the cost of imports, reflecting Malaysia’s structural dependence on imported intermediate goods. GDP shows a strong positive relationship with both imports and exports, consistent with the role of economic growth in driving trade, while inflation demonstrates limited direct influence. FDI is found to support export growth in the long run through technology transfer and integration into global value chains. Overall, the results highlight that exchange rate movements significantly affect Malaysia’s trade performance but operate alongside broader macroeconomic fundamentals with important implications for policy and business strategy