Do the trading partners’ exchange rates impact the export performance of a country? evidence from Malaysia

This paper focuses on the following three major questions: (i))Is the export of Malaysia co-integrated with the exchange rates of her trading partners?(ii)Do the exchange rates of the trading partners have a significant impact on the competitiveness of Malaysia’s exports? (iii)Is there a need for Malaysia to cut her profit mark up to increase exports when her trading partners’ currency depreciated against Ringgit? Our findings tend to give the corresponding answers to the above three questions:(i) .Yes, the export of Malaysia is cointegrated with the exchange rates of her trading partners. (ii) No, Malaysia’s export is found to be the most exogenous variable in the model thus making Malaysia’s export variable impacting the exchange rates. (iii) No, based on our quantitative analysis, policy makers are advised not to be very sensitive to the exchange rate fluctuations of its trading partners ,since the partners’ exchange rate changes may have no significant impact on her exports. The findings have strong policy implications for a developing country like Malaysia