Exchange rate and its impact on manufacturing imports: The case of Malaysia

The paper examines the relationship between real exchange rate and its impact on manufacturing imports in Malaysia. The paper focuses on the manufacturing sector since it is the backbone of Malaysia´s economy. Theoretically, exchange rate depreciation is expected to reduce imports of manufacturing goods. Other factors that may influence manufacturing imports such as real gross domestic product and relative import price are also examined. Using Fully Modified OLS and Dynamic OLS regression techniques, we find that there is a long-run equilibrium relationship among the variables in the model but real exchange rate does not influence manufacturing imports.