Asymmetric Effects of Trade Openness on Malaysian Fish Trade Balance

Abstract

Although Malaysia is a small open economy surrounded by the ocean, it still experiences a critical fish trade deficit. This study examines the nonlinear effects of trade openness on Malaysian fish trade balance from 1976 to 2016, using the Nonlinear Autoregressive Distributed Lag (NARDL) approach. The other independent variables applied in the model are the exchange rate and domestic income. Findings show that the variables are cointegrated. In the long-run, positive change in trade openness has a significant negative effect on the trade balance. The emphasis of the study is also placed on shreds of evidence of the long-run and short-run asymmetric effects of trade openness. Domestic income and depreciation of the exchange rate offer significant positive impacts on the trade balance. In the short-run, all the variables yield an opposite effect. The outcome of the exchange rate supports the J-curve effect and the Marshall-Lerner condition. This research may help the policymakers and traders to have a better understanding of the sector and thus develop suitable long-term strategies to improve the fish trade balance.