There are a few methods that could be used to assess the impact of exchange rate changes on the trade balance of a country. One of them is to analyse the effects of exchange rate changes on a country’s inpayments and outpayments at the bilateral level. One study that did this between Singapore and her 13 largest partners did not find any significant effects of exchange rate changes on Singapore’s inpayments from and outpayments to Malaysia, the largest trading partner. Suspecting that such findings could suffer from aggregation bias, we disaggregate the trade flows between the two countries by commodity and investigate the sensitivity of the inpayments of 156 Singapore export industries which engage in 98% of exports to Malaysia, and the outpayments of 133 import industries which conduct 96.7% of imports from Malaysia. Application of the bounds testing approach to each and every industry’s model revealed that most industries respond to exchange rate changes in the short run. In the long run, however, only the inpayments of 62 industries and outpayments of 52 industries are affected.
All Science Journal Classification (ASJC) codes
- Sociology and Political Science
- Public Administration
- Political Science and International Relations