LAUSR

Previous research that considered the response of the trade balance between Malaysia and China to exchange rate changes used a linear model and did not find any significant long-run link. Suspecting that the results suffer from aggregation bias as well as ignoring nonlinear adjustment of the exchange rate, we consider the trade balance of 59 industries that trade between the two countries and use a nonlinear ARDL model to show that almost 1/3rd of the industries are affected by ringgit depreciation against yuan, in an asymmetric manner. The largest industry which accounts for more than 25% of the trade is found to benefit from ringgit depreciation but not hurt from appreciation. In total, 15 industries that account for 40% of the trade enjoy this property.