INDONESIA–MALAYSIA TRADE UNDER GLOBAL UNCERTAINTY AND EXCHANGE RATE VOLATILITY

Akbar Pratama Kartika, Mirzam Arqy Ahmad, Erwin Herlian, Rangga Dhia Majduddin, Haryo Bimo Budi Indrasto, Nova Widi Setyo Nugroho

Abstract

Exchange rate uncertainty and global economic disruptions are widely recognized as key determinants of international trade flows, yet their sectoral and asymmetric dimensions remain underexplored, particularly for emerging-market bilateral trade relationships. This study examines the effects of exchange rate volatility and global crises on Indonesia–Malaysia bilateral trade at the sectoral level. Using monthly time-series data spanning January 2006 to May 2023, we employ Autoregressive Distributed Lag (ARDL) and Nonlinear ARDL (NARDL) frameworks to capture both short-run and long-run trade dynamics, as well as sector-specific asymmetric effects. Exchange rate volatility is estimated via a GARCH framework. The Global Financial Crisis (2008) and the Covid-19 pandemic (2020) are structurally identified as exogenous crisis episodes. Exchange rate volatility exerts a meaningful and persistent long-run effect on bilateral trade, confirming that price-based uncertainty is a significant driver of trade patterns. Global crises, by contrast, produce effects that are narrow, transitory, and heterogeneous across sectors. Evidence of asymmetric exchange rate effects is detected, though these effects are marginal and lack systematic consistency across sectors. Collectively, the findings suggest that bilateral trade responds more strongly to persistent exchange rate dynamics than to discrete global shocks. This study contributes to the literature by integrating sectoral disaggregation, nonlinear modeling, and structurally identified crisis periods, offering a more nuanced understanding of trade behavior under uncertainty in the context of an important South-South trading relationship.

Keywords

asymmetric effects; covid-19 exchange rates; exchange rate volatility; global crisis

Full Text:

PDF

References

Altansukh, G., & Osborn, D. R. (2022). Using structural break inference for forecasting time series. Empirical Economics, 63(1), 1–41. https://doi.org/10.1007/s00181-021-02137-w

Anderson, K. (2004). The Challenge of Reducing Subsidies and Trade Barriers. World Bank, Washington, D.C. https://doi.org/10.1596/1813-9450-3415

Ando, M., & Hayakawa, K. (2022). Impact of COVID-19 on trade in services. Japan and the World Economy, 62, 101131. https://doi.org/10.1016/j.japwor.2022.101131

Asteriou, D., Masatci, K., & Pılbeam, K. (2016). Exchange rate volatility and international trade: International evidence from the MINT countries. Economic Modelling, 58, 133–140. https://doi.org/10.1016/j.econmod.2016.05.006

Bahmani-Oskooee, M., & Aftab, M. (2017). On the asymmetric effects of exchange rate volatility on trade flows: New evidence from US-Malaysia trade at the industry level. Economic Modelling, 63, 86–103. https://doi.org/10.1016/j.econmod.2017.02.004

Bahmani-Oskooee, M., Harvey, H., & Hegerty, S. W. (2015). Exchange-rate volatility and commodity trade between the USA and Indonesia. New Zealand Economic Papers, 49(1), 78–102. https://doi.org/10.1080/00779954.2014.901136

Banik, B., & Roy, C. K. (2021). Effect of exchange rate uncertainty on bilateral trade performance in SAARC countries: a gravity model analysis. International Trade, Politics and Development, 5(1), 32–50. https://doi.org/10.1108/ITPD-08-2020-0076

Batra, A. (2006). India’s Global Trade Potential: The Gravity Model Approach. Global Economic Review, 35(3), 327–361. https://doi.org/10.1080/12265080600888090

Bricongne, J.-C., Fontagné, L., Fontagné, L., Gaulier, G., Taglioni, D., & Vicard, V. (2010). Firms and the Global Crisis: French Exports in the Turmoil. European Central Bank (ECB) Working Paper.

Chit, M. M., Rizov, M., & Willenbockel, D. (2010). Exchange Rate Volatility and Exports: New Empirical Evidence from the Emerging East Asian Economies. World Economy, 33(2), 239–263. https://doi.org/10.1111/j.1467-9701.2009.01230.x

Chowdhury, A. R. (1993). Does Exchange Rate Volatility Depress Trade Flows? Evidence from Error- Correction Models. The Review of Economics and Statistics, 75(4), 700. https://doi.org/10.2307/2110025

Clark, P. B. (1973). Uncertainty, Exchange Risk, And The Level Of International Trade. Economic Inquiry, 11(3), 302–313. https://doi.org/10.1111/j.1465-7295.1973.tb01063.x

Clemente, J., Gadea, M., Montañés, A., & Reyes, M. (2017). Structural Breaks, Inflation and Interest Rates: Evidence from the G7 Countries. Econometrics, 5(1), 11. https://doi.org/10.3390/econometrics5010011

Ditzen, J., Karavias, Y., & Westerlund, J. (2025). Testing and Estimating Structural Breaks in. https://doi.org/10.48550/arXiv.2110.14550

Giotopoulos, I., & Vettas, N. (2018). Economic crisis and export‐oriented entrepreneurship: Evidence from Greece. Managerial and Decision Economics, 39(8), 872–878. https://doi.org/10.1002/mde.2976

Heriqbaldi, U., Esquivias, M. A., Handoyo, R. D., Rifami, A. C., & Rohmawati, H. (2023). Exchange rate volatility and trade flows in Indonesia and ten main trade partners: asymmetric effects. Studies in Economics and Finance, 40(4), 708–739. https://doi.org/10.1108/SEF-10-2021-0451

Lall, S. (2000). The Technological Structure and Performance of Developing Country Manufactured Exports, 1985‐98. Oxford Development Studies, 28(3), 337–369. https://doi.org/10.1080/713688318

Mishra, B. R., & Jena, P. K. (2019). Bilateral FDI flows in four major Asian economies: a gravity model analysis. Journal of Economic Studies, 46(1), 71–89. https://doi.org/10.1108/JES-07-2017-0169

Narayan, S., & Nguyen, T. T. (2016). Does the trade gravity model depend on trading partners? Some evidence from Vietnam and her 54 trading partners. International Review of Economics & Finance, 41, 220–237. https://doi.org/10.1016/j.iref.2015.08.010

Pesaran, M. H. (2015). Time Series and Panel Data Econometrics. Oxford University Press. https://doi.org/10.1093/acprof:oso/9780198736912.001.0001

Rahman, R., Shahriar, S., & Kea, S. (2019). Determinants of Exports: A Gravity Model Analysis of the Bangladeshi Textile and Clothing Industries. FIIB Business Review, 8(3), 229–244. https://doi.org/10.1177/2319714519872643

DOI: https://doi.org/10.20961/jiep.v26i1.117609

Refbacks

  • There are currently no refbacks.