Exchange Rate Asymmetry and Trade Performance in an Import-Dependent Economy: Evidence from Malaysia
Abstract
This study examines the asymmetric effects of exchange rate movements on Malaysia’s trade performance within an import-dependent production environment. While conventional trade theory predicts that currency depreciation improves export competitiveness through relative price adjustments, such effects may be weakened in economies that rely heavily on imported intermediate inputs and global production networks. Using monthly Malaysian data from 2010 to 2023 and a nonlinear autoregressive distributed lag (NARDL) framework, the findings reveal significant asymmetric exchange rate effects on both exports and imports in the long run. Both currency appreciation and depreciation are associated with lower trade flows, although depreciation exerts relatively stronger contractionary effects on exports. These findings are broadly consistent with the view that exchange rate depreciation in import-dependent economies may generate production cost pressures that partially offset conventional competitiveness gains. Institutional quality exhibits comparatively limited empirical influence within the estimated framework. Overall, the study highlights the importance of considering structural production characteristics when evaluating exchange rate–trade relationships in globally integrated emerging economies.