Sustainability of Malaysian current account balance: Evidence from ARDL bounds tests approach

This paper investigates the sustainability of Malaysia’s current account balance for the period 1970 – 2010. In the framework of inter-temporal budget constraint the paper seeks to understand the behaviour of exports and imports of Malaysian economy. Autoregressive Distributed Lag (ARDL) bounds tests approach proposed by Pesaran et al. (2001) is applied to examine the long cointegrating relation between Malaysian exports and imports plus interest on external borrowing and it is found that these two variables are cointegrated. This implies that Malaysia’s current account is sustainable in the long run. However, as the long-run coefficient is greater than, it is concluded that the current account is weakly sustainable. This findings call for policy intervention at macro level to make efficient utilization of excess saving to boost economic growth