The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

Contents lists available at ScienceDirect

The Journal of Economic Asymmetries

journal homepage: www.elsevier.com/locate/jeca

Asymmetry cointegration and the J-curve: New evidence from

Malaysia-Singapore commodity trade

Mohsen Bahmani-Oskooeea, ,1, Muhammad Aftabb, Hanaah Harveyc

a

The Center for Research on International Economics and Department of Economics, The University of Wisconsin-Milwaukee, United
States
Department of Finance and Banking, University of Malaya, Malaysia
c
Department of Economics, Penn State University, Mont Alto, PA 17237, United States
b

A R T I C L E I N F O

ABSTRACT

JEL classication:
F31

One previous research examined the short-run and the long-run eects of exchange rate changes
on the Malaysian trade balance with each of its 11 largest partners using the linear and nonlinear
ARDL models. No signicant impact was discovered in the Malaysian model with its largest
partner, Singapore. In this paper when we disaggregate their trade ows by 65 industries which
conduct 91% of the trade, we discover the short-run asymmetric eects of exchange rate changes
on the trade balance of almost all industries, adjustment asymmetry in 31 industries, short-run
signicant impact or cumulative asymmetric eect in 10 industries, and signicant long-run
asymmetric eects in 20 industries. The two largest industries, i.e., Petroleum and Electrical
machinery with 40% share of trade were found to benet from ringgit depreciation but not hurt
by ringgit appreciation.

Keywords:
Nonlinear ARDL
Asymmetry
65 Industries
Malaysia
Singapore

1. Introduction
Exchange rate adjustment still continues to be a part of any stabilization program. During recessionary period, countries on a
xed exchange rate system try to devalue and those on a managed oat try to depreciate their currency with a hope of stimulating
exports and eventually, improving their trade balance. While the short-run eects of a devaluation or a depreciation still remain an
unsettled issue, it is the long-run eects that should dictate policy makers' decisions. Indeed, due to adjustment lags and slow
response of prices to exchange rate changes, we may not observe favorable eects of a depreciation on the trade balance in the short
run. It could continue to deteriorate and improve only in the long run, hence the J-curve phenomenon.2
The most recent review article by Bahmani-Oskooee and Hegerty (2010) classies all empirical studies into three categories. The
rst category includes early studies that used aggregate trade ows of one country with the rest of the world to test the
phenomenon.3 These studies were said to suer from the aggregation bias. So, the literature moved towards using aggregate trade
ows at bilateral level between two countries to reduce the bias.4 Since the approach did not produce strong evidence in support of
the J-curve eect, researchers shifted to the third category in which they disaggregated trade ows between two countries further by

Corresponding author.
E-mail addresses: bahmani@uwm.edu (M. Bahmani-Oskooee), maftab@siswa.um.edu.my (M. Aftab), hhh10@psu.edu (H. Harvey).
Valuable comments of two anonymous referees are greatly appreciated. Remaining errors, however, are our own.
2
For details see Magee (1973) who introduced the term and Bahmani-Oskooee (1985) who tested it empirically.
3
Some examples in this rst category are Junz and Rhomberg (1973), Miles (1979), Himarios (1985), Rosensweig and Koch (1988), Meade (1988), Moett (1989),
Felmingham (1988), Noland (1989), Lal and Lowinger (2002), Hacker and Hatemi-J (2003), and Moura and Da Silva (2005).
4
Some examples in this second category are Rose and Yellen (1989), Hsing and Savvides (1996), Hacker and Hatemi (2004), and Halicioglu (2007) (2008).
1

http://dx.doi.org/10.1016/j.jeca.2016.10.001
Received 2 September 2016; Received in revised form 6 October 2016; Accepted 6 October 2016
Available online xxxx
1703-4949/ 2016 Elsevier B.V. All rights reserved.

Please cite this article as: Bahmani-Oskooee, M., The Journal of Economic Asymmetries (2016),
http://dx.doi.org/10.1016/j.jeca.2016.10.001

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

industry. Indeed, in each stage more and more evidence of successful depreciation and support for the J-curve eect is discovered.
Although disaggregation proved to be a useful approach, failure to nd signicant long-run relation between the trade balance
and the exchange rate in most models at any level of aggregation is said to be due to assuming symmetry eects of exchange rate
changes on the trade balance which implies using a linear model. Recently, Bahmani-Oskooee and Fariditavana (2015, 2016) argued
for asymmetric eects and application of nonlinear models. Once they do, they discover more evidence supporting long-run eects of
depreciation on the trade balance. While in their 2015 article they demonstrated the asymmetric eects in the models that belong to
the rst category, in their 2016 article, they did the same for models in the second category. Indeed, they recommend others to follow
this research direction and use nonlinear models. Following this recommendation, recently Bahmani-Oskooee and Harvey (2016)
tried this new approach and investigated the asymmetric eects of exchange rate changes on the bilateral trade balances of Malaysia
with each of its 11 largest trading partners. While they found asymmetric eects in many of the bilateral models, no such eects were
discovered in the bilateral trade balance model with its largest trading partner, Singapore.5 Indeed, the real bilateral exchange rate
had no signicant long-run eects on the Malaysia-Singapore trade balance neither in the linear nor in the nonlinear model.
Suspecting that this could be due to the aggregation bias, in this paper we disaggregate the two countries trade ows by commodity
and investigate the symmetric and asymmetric eects of exchange rate changes on the trade balance of each of the 65 industries that
engage in 91% of trade between the two countries. To this end, we outline both the linear and nonlinear models and estimation
methods in Section 2. Empirical results are reported in Section 3 with a summary and conclusion in Section 4. Denition of variables
and sources of data are reported in an Appendix.6
2. The linear and nonlinear trade balance models and methods7
It is now a well-established fact to include the measures of economic activities in two trading partners as well as a measure of
relative prices, i.e., the real bilateral exchange rate as three main determinant of the trade balance. Therefore, we begin with the
following long-run specication8:

LnTBj, t = + 1LnIPtML + 2LnIPtSG + 3LnREXt + t

(1)

Since data are reported by Malaysia, we specify (1) from the Malaysian perspective. As such, we dene TBj to be a measure of the
trade balance for industry j dened as the ratio of Malaysian import of commodity j from Singapore over its export of commodity j to
Singapore. As argued by Bahmani-Oskooee (1991), this measure of the trade balance is unit free and it allows us to specify the model
in the logarithmic form that ts the macro data better. Furthermore, the measure is dened as the ratio of imports over exports so
that if this measure is to improve due to a depreciation of Malaysian ringgit against Singapore dollar, an estimate of 3 to be positive.
As the Appendix reveals, a decline in the real bilateral exchange rate, REX, reects a real depreciation of Malaysian ringgit against
Singapore dollar. Since we will use monthly data to carry out our empirical analysis, we use the index of industrial production in both
countries as a measure of economic activity. Thus, in (1) we include IPML as a Malaysian index and IPSG as a Singapore's index.
Based on the trade balance denition, we expect the IPML to carry a positive coecient and the IPSG to carry a negative coecient.
However, as argued by Bahmani-Oskooee (1986), these income elasticities could also be negative and positive respectively, if each
country produces more of import-substitute goods as it grows.
The coecient estimates we discussed above are the long-run estimates. In order to also infer the short-run eects of all the
exogenous variables we need to turn (1) into an error-correction specication. The nature of time-series macroeconomic variables is
such that they are mostly integrated of order zero, I(0), or order one, I(1). An approach that allows us to have a combination of I(0)
and I(1) variables and does not require unit-root testing is that of Pesaran, Shin, and Smith (2001) as outlined by (2):
n1

LnTBj, t = +

n2

n3

n4

SG
ML
SG
1,iLnTBj,t i + 2,iLnIPtML
i + 3, i LnIPt i + 4, i LnREXt i + 0LnTBj, t 1 + 1LnIPt 1 + 2LnIPt 1
i =1

i =0

i =0

i =0

+ 3LnREXt 1 + t

(2)

Once (2) is estimated, the short-run eects and the long-run eects are judged by the estimates of coecients attached to the
rst-dierenced variables and the estimates of 1-3 normalized on 0, respectively. However, to avoid spurious regression issue, the
variables in (2) must be cointegrated. Pesaran et al. (2001) recommend applying the F test for the joint signicance of lagged level
variables as a sign of cointegration. They also tabulate new critical values for this F test that account for integrating properties of
variables.
Prior to the introduction of asymmetry cointegration by Shin, Yu, and Greenwood-Nimmo (2014) it was a common practice to
just estimate (2) and judge the J-curve eect as a short-run negative or insignicant 4, i coecient combined with a signicant
5

Malaysia's trade with Singapore is as much as its trade with China and these are its two largest partners.
Studies that have estimated Malaysia's trade balance with the rest of the world are Lal and Lowinger (2001), Duasa (2007) and Yuso (2007) (2010) who report
no signicant link between the exchange rate and Malaysia's trade balance. Then, Malaysia's bilateral trade balances have been estimated by Wilson (2001),
Onafowora (2003), and Bahmani-Oskooee and Harvey (2010), again with mixed ndings. They have all employed linear models and assumed exchange rate changes
to have the symmetric eects. These studies have been reviewed in detail by Bahmani-Oskooee and Harvey (2016) and thus, no need to review them here.
7
The method in this section closely follows Bahmani-Oskooee and Fariditavana (2016) who raised the asymmetry concern against Rose and Yellen (1989).
8
Note that specication (1) follows Rose and Yellen (1989) and Bahmani-Oskooee and Fariditavana (2016). We have mere set the notations to conform it to the
industry level data.
6

00
01
02
03
04
05
06
07
08
09
11
12
21
22
23
24
25
26
27
28
29
32
33
34
41
42
43
51
52
53
54
55
56
57
58
59
61
62
63
64
65
66
67
68
69
71

Code

1.45(0.48)
3.87(0.99)
0.17(0.34)
0.13(0.35)
0.65(1.56)
3.39(1.84)*
0.28(0.40)
0.15(0.58)
0.57(0.58)
0.34(1.92)*
0.06(0.22)
2.58(3.48)**
3.05(2.76)**
3.00(0.79)
3.16(1.12)
1.93(0.65)
2.81(2.61)**
0.34(0.68)
1.58(2.09)**
0.28(0.40)
0.97(1.96)**
0.47(0.29)
1.71(0.77)
1.00(6.81)**
5.34(1.57)
1.50(0.77)
1.26(0.73)
1.77(1.71)*
0.46(0.71)
0.34(0.71)
0.34(0.94)
0.36(2.48)**
1.55(0.28)
0.29(2.16)**
0.18(1.51)
1.33(2.05)**
0.51(0.19)
0.11(0.78)
0.98(0.88)
0.44(0.89)
0.55(2.15)**
1.37(1.59)
0.71(1.69)*
1.31(1.27)
0.19(1.29)
0.70(1.58)

Ln REXt

5.39(1.80)*

0.06(0.02)

3
4.55(1.76)*

0.67(0.26)

2.28(0.84)
0.42(0.37)
0.84(1.66)*

4.66(1.71)*

0.10(0.09)
0.34(0.67)

1.27(1.13)
0.93(1.93)*

12.59(2.29)**

6.24(1.12)

1.74(0.31)

14.22(2.57)**

0.49(0.44)
1.05(2.15)**

0.53(0.87)

0.28(0.45)

0.74(1.18)

0.69(1.10)
1.24(2.69)**

3.37(1.92)*

0.87(0.29)

2.47(0.65)

4.78(2.68)**

LnREXt4

0.01(0.01)

2.39(0.79)

6.59(1.70)*

0.29(0.16)

Ln REXt3

5.23(2.66)**
4.46(2.54)**

9.73(2.90)**
0.24(0.12)
3.22(1.85)*

2.91(0.76)

1.24(0.67)

4.21(1.39)

LnREXt2

0.25(0.06)

2.28(2.32)**

2.89(1.52)

6.16(2.06)

**

Ln REXt1

Short-run coecient estimates

Table 1
Short-run coefficient estimates of linear ARDL model (2).

1.41(1.27)
0.03(0.06)

7.58(2.99)**

0.18(0.29)

5.24(2.99)**

0.60(0.20)

8.02(2.11)**

LnREXt5

1.70(1.53)
0.17(0.36)

0.68(1.14)

3.91(2.17)**

0.54(0.18)

11.74(3.02)**

LnREXt6

2.47(2.25)**
1.26(2.69)**

1.03(1.68)*

2.23(1.27)

3.42(1.15)

LnREXt7

0.72(0.63)
0.82(1.71)*

3.14(2.85)**

4.05(2.31)**

11.62(3.89)**

LnREXt9

(continued on next page)

1.79(2.89)**

3.68(2.12)**

1.24(0.41)

LnREXt8

M. Bahmani-Oskooee et al.

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

0.29(1.19)
1.02(2.31)**
0.09(0.59)
0.14(0.95)
0.27(1.09)
0.19(1.95)*
0.37(0.87)
3.17(3.91)**
4.47(2.05)**
0.19(0.55)
1.29(0.81)
0.67(1.88)*
0.11(0.17)
0.22(0.33)
0.18(0.77)
0.26(2.16)**
0.03(0.17)
0.40(5.19)**
2.44(1.96)**

Ln REXt

1.42(2.04)**

3.82(1.78)*

Ln REXt1

Short-run coecient estimates

LnREXt2

Ln REXt3

LnREXt4

LnREXt5

LnREXt6

Notes: Numbers inside parentheses are absolute values of the t-ratios. The critical value of standard t-ratio is 1.64 (1.96) at the 10% (5%) significance level.
*
Indicate signicance at the 10% level.
**
Indicate signicance at the 5% level.

72
73
74
75
76
77
78
79
81
82
83
84
85
87
88
89
93
96
97

Code

Table 1 (continued)

LnREXt7

LnREXt8

LnREXt9

M. Bahmani-Oskooee et al.

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 2
Long-run coefficient estimates of linear ARDL model (2).
Industries

00-Live animals
01-Meat and meat preparations
02-Dairy products and birds eggs
03-Fish, crustaceans and molluscs, n.e.s.
04-Cereals and cereal preparations
05-Vegetables and fruits
06-Sugars, sugar preparations, n.e.s.
07-Coee, tea, cocoa, spices, n.e.s.
08-Feeding stu for animals, n.e.s.
09-Miscellaneous edible, n.e.s.
11-Beverages
12-Tobacco and tobacco, n.e.s.
21-Hides, skins and furskins, raw
22-Oil seeds and oleaginous fruits
23-Crude rubber, n.e.s.
24-Cork and wood
25-Pulp and waste paper
26-Textile bres, n.e.s.
27-Crude fertilizers, n.e.s.
28-Metalliferous ores and metal scrap
29-Crude animal, n.e.s.
32-Coal, coke and briquettes
33-Petroleum, petroleum products, n.e.s.
34-Gas, natural and manufactured
41-Animal oils and fats
42-Fixed vegetable oils and fats, crude, n.e.s.
43-Animal or vegetable oilsand fats, n.e.s.
51-Organic chemicals
52-Inorganic chemicals
53-Dyeing, tanning and colouring materials
54-Medicinal and pharmaceutical products
55-Essential oils and resinoids, n.e.s.
56-Fertilizers, manufactured
57-Plastics in primary forms
58-Plastics in non-primary forms
59-Chemical materials and products,n.e.s.
61-Leather, leather manufactures, n.e.s.
62-Rubber manufactures, n.e.s.
63-Cork and wood manufactures, n.e.s.
64-Paper, paperboard, and articlesof, n.e.s.
65-Textile yarn, fabrics, made-uparicles, n.e.s.
66-Non-metallic mineral manufactures, n.e.s.
67-Iron and steel
68-Non-ferrous metals
69-Manufactures of metal, n.e.s.
71-Power generating machinery, n.e.s.
72-Machinery specialized, n.e.s.
73-Metalworking machinery
74-General industrial machinery, n.e.s.
75-Oce machines and automatic equipment, n.e.s.
76-Telecommunications and sound recording, n.e.s.
77-Electrical machinery, apparatus and appliances, n.e.s
78-Road vehicles, n.e.s.
79-Others transport equipment
81-Prefabricated buildings, sanitary, n.e.s.
82-Furniture and parts thereof
83-Travel goods, handbags, n.e.s.
84-Articles of apparel and clothing accessories
85-Footwear
87-Professional instruments, n.e.s.
88-Photographic apparatus, equipment, n.e.s.
89-Miscellaneous manufactured articles, n.e.s.

Long-run coecient estimates

Trade Share

Constant

0.25%
0.04%
0.27%
0.19%
0.21%
0.31%
0.09%
0.63%
0.04%
0.60%
0.71%
0.10%
0.01%
0.01%
0.02%
0.06%
0.01%
0.05%
0.10%
0.08%
0.06%
0.02%
23.38%
0.97%
0.00%
0.37%
0.07%
1.74%
0.11%
0.33%
0.16%
0.37%
0.04%
1.40%
0.30%
0.56%
0.00%
0.18%
0.17%
0.55%
0.09%
0.94%
0.57%
2.03%
1.56%
0.43%
1.54%
0.40%
1.67%
3.21%
2.00%
17.37%
0.28%
0.54%
0.10%
0.32%
0.04%
0.20%
0.06%
1.60%
0.93%
2.58%

16.54(1.99)**
5.78(0.72)
8.56(5.23)**
4.99(1.59)
4.43(4.61)**
4.43(1.99)**
1.31(0.83)
0.16(0.15)
9.62(7.83)**
3.08(3.15)**
4.89(2.20)**
8.48(4.31)**
4.14(1.01)
8.59(1.53)
1.09(0.34)
2.29(0.64)
9.27(2.17)**
2.18(0.81)
3.04(0.47)
3.28(0.52)
6.56(2.09)**
4.71(0.17)
3.39(1.59)
0.46(0.25)
5.80(0.69)
3.54(1.37)
9.24(4.05)**
1.61(2.53)**
5.19(6.54)**
1.40(1.69)*
0.79(1.02)
2.29(3.85)**
11.11(1.25)
1.66(3.18)**
1.76(1.26)
1.05(2.47)**
9.51(2.56)**
2.22(3.19)**
3.25(2.61)**
3.06(1.49)
0.05(0.03)
16.22(1.54)
1.29(0.37)
1.39(1.01)
1.46(1.68)*
3.43(1.12)
1.53(2.20)**
0.20(0.15)
0.75(1.45)
4.69(4.07)**
1.79(0.43)
1.17(1.86)*
0.14(0.09)
3.15(1.92)*
3.18(6(2.61)**
1.65(0.89)
3.65(2.65)**
3.54(3.09)**
1.24(0.19)
2.14(2.80)**
3.54(3.09)**
1.23(2.74)**

Ln IPMY

Ln IPSG
*

11.39(1.73)
5.81(0.92)
2.47(1.93)*
3.16(1.28)
2.88(3.76)**
1.31(0.76)
1.97(1.57)
1.03(1.19)
5.59(5.83)**
0.21(0.27)
3.59(2.14)**
2.88(1.84)*
0.22(0.07)
3.23(0.74)
2.85(1.14)
0.21(0.08)
2.84(0.83)
0.005(0.002)
6.64(1.28)
5.22(1.05)
6.02(2.43)**
16.29(0.77)
2.14(1.28)
2.30(1.59)
2.34(0.35)
0.55(0.27)
6.26(3.55)**
1.04(2.07)**
3.29(5.26)**
0.01(0.01)
0.68(1.11)
0.94(2.01)**
7.00(0.97)
0.61(1.45)
0.99(0.88)
0.92(2.76)**
10.65(3.51)**
1.32(2.43)**
0.51(0.52)
1.35(0.89)
1.12(0.83)
7.89(1.01)
0.68(0.26)
1.79(1.67)*
1.28(1.85)*
0.69(0.36)
1.06(1.94)*
0.43(0.39)
0.68(1.69)*
1.85(2.02)**
1.89(0.58)
1.25(2.49)**
0.22(0.19)
0.85(0.66)
2.56(2.64)**
0.59(0.41)
2.09(1.91)*
0.70(0.78)
2.47(0.50)
1.48(2.47)**
0.70(0.78)
1.06(3.00)**

Ln REX

11.31(2.81)
13.85(2.79)**
4.08(1.37)
13.80(0.98)
1.26(1.86)*
0.27(0.33)
1.57(1.22)
0.53(0.35)
0.81(1.74)*
0.90(1.69)*
1.58(1.72)*
3.45(2.90)**
2.08(2.93)**
0.33(0.40)
0.96(1.95)*
0.31(0.58)
0.21(0.41)
0.91(1.50)
1.34(3.37)**
1.14(2.42)**
1.58(1.85)*
0.23(0.22)
0.72(0.81)
3.69(3.65)**
0.24(0.14)
5.83(2.86)**
0.58(0.24)
2.65(0.91)
2.45(1.84)*
1.88(1.16)
0.56(0.34)
0.03(0.02)
1.85(0.95)
5.93(2.77)**
0.67(0.58)
0.94(0.69)
9.49(2.96)**
8.19(2.21)**
4.84(1.75)*
1.27(0.39)
1.64(1.21)
3.97(2.49)**
13.60(1.16)
4.26(0.30)
2.33(2.59)**
3.93(3.66)**
1.39(1.84)*
2.27(2.49)**
2.16(0.57)
3.39(0.79)
2.01(1.84)*
3.28(2.50)**
3.37(3.42)**
2.09(1.79)*
0.40(1.43)
0.004(0.01)
1.01(2.88)**
0.70(1.77)**
0.15(0.41)
1.74(4.19)*
0.46(1.19)
0.45(0.99)
0.16(0.61)
0.75(2.46)**
1.89(0.48)
7.12(1.34)
0.34(1.35)
0.58(2.19)**
0.39(0.62)
1.06(1.49)
0.32(1.78)*
0.32(1.49)
*
3.41(1.91)
5.66(2.99)**
0.04(0.15)
0.27(0.79)
1.87(3.31)**
3.05(4.42)**
0.19(0.27)
0.57(0.75)
0.06(0.08)
2.24(2.58)**
0.11(0.04)
1.18(0.32)
0.45(0.33)
3.31(1.94)*
0.18(0.33)
1.58(2.29)**
0.71(1.86)*
0.55(1.29)
0.96(0.89)
3.18(2.66)**
0.43(1.42)
0.42(1.16)
0.13(0.21)
1.74(2.58)**
0.15(0.68)
0.15(0.59)
0.08(0.15)
0.61(0.99)
1.59(0.93)
2.28(1.24)
0.53(1.67)*
0.28(0.77)
0.58(0.94)
0.64(0.88)
0.95(1.36)
3.35(4.05)**
0.77(1.44)
1.53(2.50)**
0.21(0.26)
0.52(0.56)
0.24(0.37)
1.46(1.99)**
0.03(0.07)
1.22(2.13)**
2.36(0.91)
0.49(0.17)
0.27(0.87)
1.55(4.02)**
0.03(0.07)
1.22(2.13)**
0.01(0.05)
0.51(2.23)**
(continued on next page)
**

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 2 (continued)
Industries

Long-run coecient estimates

93-Special transactions and commodities, n.e.s.

96-Coin, except gold coin, unissued
97-Gold, non-monetary

Trade Share

Constant

Ln IPMY

Ln IPSG

Ln REX

0.17%
0.005%
0.92%

1.48(0.32)
32.79(3.64)**
1.52(0.33)

2.55(0.72)
17.88(2.42)**
5.78(1.59)

1.69(0.91)
3.71(0.82)
2.19(1.01)

0.40(0.17)
9.99(2.11)**
5.13(2.07)**

Notes: Numbers inside parentheses are the absolute values of the t-ratios. The critical value of standard t-ratio is 1.64 (1.96) at the 10% (5%) significance level. Trade
share is based on sum of imports and exports in the year 2014.
*
Indicates signicance at the 10% level.
**
Indicates signicance at the 5% level.

positive 3 / 0 coecient. However, as mentioned before, Bahmani-Oskooee and Fariditavana (2015) and Bahmani-Oskooee and
Fariditavana (2016) demonstrated that the insignicance of the short-run and long-run estimates could be due to assuming the
eects of exchange rate changes to be symmetric. They then followed Shin et al. (2014) and modied (2) so that one can assess the
asymmetry eects of exchange rate changes. Under this new method, we rst form LnREX which includes negative values reecting
ringgit depreciation and positive values, reecting ringgit appreciation. Using these changes, we then construct two new time series
and dene them as POSt, partial sum of positive changes and NEGt, partial sum of negative changes. These two new variables now
reect only ringgit appreciation and ringgit depreciation respectively.9 We then replace LnREX variable in (2) by POS and NEG
variables to arrive at:
n1

LnTBj, t = +

i =1

n2

n3

n4

n5

SG
ML
1,iLnTBj,t i + 2,iLnIPtML
i + 3, i LnIPt i + 4, i POSt i + 5, i NEGt i + 0LnTBj, t 1 + 1LnIPt 1

2LnIPtSG
1

i =0

i =0

i =0

i =0

+ 3POSt 1 + 4NEGt 1 + t

(3)

Since construction of POS and NEG variables using partial sum methods introduce nonlinearity to the adjustment process, Shin
et al. (2014) call specication (3) as the Nonlinear Autoregressive Distributed Lag model or nonlinear ARDL specication whereas,
(2) is labeled as a linear ARDL model.
Shin et al. (2014) then demonstrate that Pesaran et al.'s (2001) bounds testing approach to cointegration in the linear model (2)
is equally applicable to the nonlinear model (3). Indeed, they argue that even if the nonlinear model (3) has one more exogenous
variable than (2), we should treat the POS and NEG variables in (3) as one variable due to the dependency between them.10 The
implication is that the same critical values of the F test should be used in both models to establish cointegration. Once (3) is
estimated and cointegration is established, a few assumptions related to the asymmetric eects are established. First, the short-run
adjustment asymmetry of POS and NEG variables is established if they take dierent lag orders when a set criterion is used to
select the optimum lags. This is expected to be the case in most trade balance models due to the fact that imports and exports
originate in two dierent countries that are subject to two dierent trade rules and regulations. Second, the short-run asymmetric
eects of exchange rate changes on the trade balance will be established if 4, i is dierent than 5, i at each lag i, either in size or in
sign. Third, short-run cumulative or impact asymmetry will be established if . Finally, long-run asymmetric eects of
4, i

5, i

exchange rate changes on the trade balance will be established if 3 / 0 4 / 0 . The Wald test will be used to test the last two
asymmetry hypotheses.11
3. The results
Both the linear and nonlinear models are estimated for each of the 65 industries that trade between Malaysia and Singapore.
These 65 industries together engage in almost 91% of the trade and the list includes small and large industries as measured by their
trade shares. We use monthly data spanning from April 2000 till December 2014 (177 observations).12 A maximum of 10 lags are
imposed on each rst-dierenced variable and following others, Akaike's Information Criterion (AIC) is used to select an optimum
specication in each model and each industry. The results from each optimum model are then reported in several tables. Since there
are too many coecient estimates and too many statistics, the required critical values are reported in the notes to each table. An
estimate is then identied by * if it is signicant at the 10% level and by ** if it is signicant at the 5% level.
We begin with estimates of the linear model (2) and report the results in the three tables. Due to the volume of results, we report
t

9
More precisely, the two variables are generated as POSt = j =1 LnREX j+ = j =1 max(LnREXj , 0) and NEGt = j =1 LnREX j = j =1 min(LnREXj , 0) . Intuitively,
the POS variable at time t is cumulative sum of all changes in LnREX variable prior to time t where negative values are replaced by zeros. Similarly, the NEG variable
at time t is cumulative sum of all changes in LnREX where positive values are replaced by zeros.
10
See Shin et al. (2014).
11
For some other applications of these approaches see Apergis and Miller (2006), Halicioglu (2007), De Vita and Kyaw (2008), DellAnno and Halicioglu (2010),
Verheyen (2013), and Hajilee and Al-Nasser (2014).
12
As mentioned in the previous section, under the ARDL approach variables could be combination of I(0) and I(1). Therefore, we had to make sure that no variable
is I(2). Indeed, application of the ADF unit root test supported our claim that there is no I(2) variable.

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 3
Diagnostic Statistics Associated with Linear ARDL Model (2).
Industries

00-Live animals
01-Meat and meat preparations
02-Dairy products and birds eggs
03-Fish, crustaceans and molluscs, n.e.s.
04-Cereals and cereal preparations
05-Vegetables and fruits
06-Sugars, sugar preparations, n.e.s.
07-Coee, tea, cocoa, spices, n.e.s.
08-Feeding stu for animals, n.e.s.
09-Miscellaneous edible, n.e.s.
11-Beverages
12-Tobacco and tobacco, n.e.s.
21-Hides, skins and furskins, raw
22-Oil seeds and oleaginous fruits
23-Crude rubber, n.e.s.
24-Cork and wood
25-Pulp and waste paper
26-Textile bres, n.e.s.
27-Crude fertilizers, n.e.s.
28-Metalliferous ores and metal scrap
29-Crude animal, n.e.s.
32-Coal, coke and briquettes
33-Petroleum, petroleum products, n.e.s.
34-Gas, natural and manufactured
41-Animal oils and fats
42-Fixed vegetable oils and fats, crude, n.e.s.
43-Animal or vegetable oilsand fats, n.e.s.
51-Organic chemicals
52-Inorganic chemicals
53-Dyeing, tanning and colouring materials
54-Medicinal and pharmaceutical products
55-Essential oils and resinoids, n.e.s.
56-Fertilizers, manufactured
57-Plastics in primary forms
58-Plastics in non-primary forms
59-Chemical materials and products,n.e.s.
61-Leather, leather manufactures, n.e.s.
62-Rubber manufactures, n.e.s.
63-Cork and wood manufactures, n.e.s.
64-Paper, paperboard, and articlesof, n.e.s.
65-Textile yarn, fabrics, made-uparicles, n.e.s.
66-Non-metallic mineral manufactures, n.e.s.
67-Iron and steel
68-Non-ferrous metals
69-Manufactures of metal, n.e.s.
71-Power generating machinery, n.e.s.
72-Machinery specialized, n.e.s.
73-Metalworking machinery
74-General industrial machinery, n.e.s.
75-Oce machines and automatic equipment, n.e.s.
76-Telecommunications and sound recording, n.e.s.
77-Electrical machinery, apparatus and appliances, n.e.s
78-Road vehicles, n.e.s.
79-Others transport equipment
81-Prefabricated buildings, sanitary, n.e.s.
82-Furniture and parts thereof
83-Travel goods, handbags, n.e.s.
84-Articles of apparel and clothing accessories
85-Footwear
87-Professional instruments, n.e.s.
88-Photographic apparatus, equipment, n.e.s.
89-Miscellaneous manufactured articles, n.e.s.
93-Special transactions and commodities, n.e.s.

Diagnostics
F Stat

ECMt-1

LM

RESET

CUSUM

CUSUMSQ

Adj. R2

5.85**
2.51
10.93**
4.29*
6.09**
3.95*
29.89**
7.25**
8.54**
3.11
3.39
21.97**
14.89**
8.97**
5.37**
4.76**
12.96**
3.54
3.59
2.17
3.69
2.69
10.72**
11.49**
3.64
6.29**
8.48**
7.36**
7.65**
5.02**
6.55**
8.86**
1.97
7.66**
1.93
26.72**
5.01**
7.50**
5.79**
2.46
2.99
1.90
1.92
10.92**
4.72**
2.62
7.93**
10.34**
9.62**
2.31
1.08
2.63
15.67**
38.22**
21.02**
4.28*
18.32**
5.09**
1.43
7.27**
19.99**
8.31**
1.01

0.19(4.20)**
0.28(3.03)
0.60(6.79)**
0.25(4.14)**
0.71(5.49)**
0.43(3.86)**
0.86(10.81)**
0.47(5.34)**
0.44(5.71)**
0.29(3.66)*
0.28(3.51)*
0.69(9.52)**
0.52(7.76)**
0.37(5.87)**
0.47(4.72)**
0.48(4.33)**
0.48(7.12)**
0.36(3.71)*
0.19(3.85)**
0.22(3.19)
0.24(3.98)**
0.11(2.98)
0.54(6.53)**
0.44(6.81)**
0.23(3.58)*
0.41(5.23)**
0.45(5.36)**
0.87(5.41)**
0.45(5.47)**
0.31(4.35)**
0.76(5.04)**
0.48(5.77)**
0.35(2.24)
0.51(5.25)**
0.17(2.44)
0.81(10.61)**
0.38(4.39)**
0.41(5.35)**
0.48(4.56)**
0.17(2.29)
0.24(3.36)
0.07(1.61)
0.21(2.10)
0.41(6.44)**
0.34(4.15)**
0.22(1.78)
0.69(5.64)**
0.58(6.36)**
0.59(6.19)**
0.22(3.39)
0.12(1.73)
0.19(3.44)
0.58(7.97)**
0.95(12.13)**
0.98(9.11)**
0.37(3.95)**
0.61(8.44)**
0.55(4.52)**
0.23(2.23)
0.51(5.54)**
0.63(9.07)**
0.51(6.47)**
0.08(1.88)

7.14
12.43
23.50**
18.57*
16.82
12.43
52.17**
18.32
20.21*
21.35**
16.28
35.24**
42.40**
14.88
22.04**
15.05
24.72**
8.49
7.20
9.23
12.15
9.97
83.62**
18.74*
19.87*
26.55**
23.49**
17.89
12.81
10.98
11.97
20.43**
13.32
22.02**
9.51
43.63**
16.61
16.08
14.13
15.43
13.26
7.07
10.03
26.95**
8.03
14.43
22.40**
27.33**
23.64**
19.89**
14.40
13.51
36.37**
56.25**
36.93**
12.23
31.05**
18.11**
8.58
24.45**
27.49**
23.75**
9.67

0.92
0.32
1.84
0.08
3.76
10.58**
5.68
2.84*
0.66
8.03**
0.89
0.66
5.89**
1.99
0.98
0.43
0.22
12.60**
0.28
4.65**
0.47
2.01
2.41
0.01
0.07
3.41*
0.11
0.20
1.74
1.73
0.02
0.14
0.32
4.71**
4.43**
1.61
0.06
0.82
1.02
0.41
0.14
0.02
1.30
6.44**
14.41**
0.29
3.92**
0.06
0.05
1.40
0.65
0.08
7.45**
3.01
1.21
1.21
0.63
1.71
0.04
0.02
0.14
9.48**
1.64

S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S
S

S
US
US
US
US
S
US
S
S
US
S
US
US
US
S
S
US
US
S
US
US
US
US
US
S
US
S
S
S
S
US
S
US
US
US
US
S
S
US
S
S
US
S
US
US
S
S
US
US
S
S
S
S
US
S
US
S
S
S
US
US
S
US
(continued on

0.05
0.26
0.17
0.19
0.44
0.53
0.19
0.34
0.21
0.33
0.25
0.24
0.10
0.13
0.27
0.35
0.08
0.23
0.13
0.17
0.11
0.02
0.01
0.16
0.25
0.24
0.18
0.41
0.34
0.22
0.32
0.19
0.55
0.38
0.22
0.19
0.53
0.19
0.33
0.35
0.19
0.11
0.31
0.04
0.28
0.42
0.27
0.29
0.31
0.09
0.27
0.19
0.14
0.19
0.24
0.32
0.15
0.37
0.44
0.28
0.15
0.18
0.14
next page)

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 3 (continued)
Industries

96-Coin, except gold coin, unissued

97-Gold, non-monetary

Diagnostics
F Stat

ECMt-1

LM

RESET

CUSUM

CUSUMSQ

Adj. R2

6.76**
12.79**

0.40(5.19)**
0.47(6.96)**

24.88**
33.29**

3.85*
1.85

S
S

US
US

0.18
0.13

Notes:
a
The critical value of the F test at the 10% (5%) signicance level when there are three exogenous variables (k=3) is 3.77 (4.35). These come from Pesaran et al.
(2001).
b
Number inside the parenthesis next to ECMt-1 is the absolute value of the t-ratio, Its upper bound critical value is 3.46 (3.78) at the 10% (5%) signicance level
and this comes from Pesaran et al. (2001).

the short-run coecient estimates for the exchange rate only in Table 1. However, we report long-run normalized coecient
estimates for all variables in Table 2. Finally, diagnostic estimates associated with each optimum model are reported in Table 3.
From Table 1 of the short-run estimates, we gather that there are 36 industries in which there is at least one signicant
coecient, implying that the real bilateral exchange rate has the signicant short-run eects on the commodity trade between
Malaysia and Singapore. The traditional denition of the J-curve, i.e., negative or insignicant coecients at lower lags followed by
signicant positive estimates at higher lags receives support in industries coded 00 (Live animals), 42 (Fixed vegetable oil), 43
(Animal or vegetable oil), 56 (Fertilizers), and 64 (Paper and paperboard), all small industries measured by their trade shares that
are reported in Table 2.13 From Table 2 of the long-run estimates we also gather that the short-run eects of exchange rate changes
last into the long run eects in 33 industries and in 15 industries coded 04 (Cereals and cereal preparations), 21 (Hides, etc.), 25
(Pulp and waste paper), 29 (Crude animal), 33 (Petroleum), 34 (Gas), 42 (Fixed vegetable oils), 52 (inorganic chemicals), 53
(Dyeing, tanning, and colouring materials), 63 (Cork and wood manufactures), 81 (Prefabricated buildings), 83 (Travel goods), 87
(Professional instruments), 96 (Coins), and 97 (Gold, non-monetary) the eect is signicantly positive, supporting the denition of
the J-curve advanced by Rose and Yellen (1989), i.e., short-run negative or insignicant eects combined with positive long-run
eects. The largest industry, i.e., 33 (Petroleum and petroleum products) with more than 23% market share is among these
industries that benet from ringgit depreciation. In the remaining industries (e.g., 00-Live animals), the eect is signicantly
negative, implying that ringgit depreciation will worsen the trade balances of these industries. This is due to either Malaysian import
demand for Singapore's goods or Singapore's import demand for Malaysian goods being inelastic. As for the long-run eects of
income variables, Malaysian index of industrial production carries signicant coecient in 24 industries and Singapore's index
carries a signicant coecient in 22 cases.
The above long-run estimates, however, are valid only if we establish cointegration. To this end, we turn to the results of the F
test along with several other diagnostics in Table 3. Clearly, in any model that there was at least one signicant long-run coecient
estimate, the F statistic to establish the joint signicance of lagged level variable is signicant, supporting cointegration. In a few
instances, e.g., industry coded 09 (Miscellaneous edible), where there was at least one long-run signicant coecient but the F
statistic is insignicant, following Pesaran et al. (2001) we rely upon an alternative test. Under the alternative test, we use
normalized long-run estimates from Table 2 and long-run model (1) to generate the error term known as ECM. We then go back to
the linear error-correction model (2) and replace the lagged level variables by ECMt-1 and estimate this new specication after
imposing the same optimum lags. Cointegration will be supported if ECMt-1 carries a signicantly negative coecient. However, the
t-test that is used to judge the signicance of this coecient has new critical values that Pesaran et al. (2001) tabulate.14 Table 3
reveals that this test is also signicant in most models.
In Table 3, we have also reported a few other diagnostic statistics. To test for autocorrelation, we report the Lagrange Multiplier
(LM) statistic which is insignicant in most models, supporting the lack of serial correlation among the residuals. Ramsey's RESET
test is also reported which is insignicant in most models, implying that optimum models are correctly specied. We have also
applied the CUSUM and CUSUMSQ tests to the residuals of each optimum model to establish stability of all coecient estimates.
Stable coecient are indicated by S and unstable ones by US and as can be seen, a majority of estimates are stable. Finally, we
have reported the size of adjusted R2 so that we can judge the goodness of t in each model.
How will the results and conclusions change if we consider estimates from the nonlinear ARDL model (3)? The results are
reported in Tables 47.
Due to volume of the short-run results, we report coecient estimates for ringgit appreciation (POS) in Table 4 and for ringgit
depreciation (NEG) in Table 5. From these two tables, we gather that in 47 industries at least one of the two variables carries at
least one signicant coecient. Clearly, these increased number of short-run cases compared to 36 industries in the linear model
(Table 1) must be attributed to nonlinear adjustment of the real bilateral exchange rate. Therefore, it appears that separating ringgit
appreciation from depreciation yields more signicant short-run eects. For example, in industry coded 01 (Meat and meat
preparations), the exchange rate had no short-run eects in the linear model (Table 1). However, when appreciations are separated
from depreciations, ringgit depreciation has signicant short-run eects (Table 5) but ringgit appreciation does not (Table 4). This

13
14

Note that due to space limitation, each industry's name is reported in Table 2.
It should be mentioned that Banerjee, Dolado, and Mestre (1998) introduced this test within Engle-Granger method.

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 4
Short-run coefficient estimates of ringgit appreciation in the Nonlinear ARDL model (3).
Code

Short-run coecient estimates

POSt

POSt1

00

5.43(0.44)

26.98
(2.17)**

01

15.85
(0.90)
0.26(0.03)

02

POSt2

POSt3

POSt4

3.72(0.52)

6.76(0.96)

29.07
(4.18)**

POSt5

POSt6

POSt7

POSt8

1.31(0.53)

4.55(1.84)*

7.06(2.88)**

9.27(2.07)**

3.07(0.68)

5.27(1.17)

17.83
(2.38)**

06

2.81(1.53)
0.39(0.28)
20.18
(2.60)**
11.48(1.09)

07
08

1.10(1.07)
2.17(0.53)

09

3.17(1.39)

11.97
(2.98)**
2.31(1.02)

11
12

22
23

1.62(1.36)
5.68
(1.95)*
10.34
(2.25)**
0.79(0.18)
4.37(0.33)

17.41(1.40)

39.90
(3.21)**

24
25
26
27

4.54(1.41)
5.42(1.30)
0.84(0.42)
0.26(0.03)

6.95(0.71)

17.34(1.81)*

28

2.66(0.25)

30.94
(2.99)**

29
32
33
34
41
42
43

27.76
(2.32)**
1.93(1.13)
7.11(1.06)
3.89(1.54)
1.69(0.94)
3.21(0.79)
7.87(3.15)**
2.70(0.37)

16.86
(1.72)*
21.10
(1.81)*

11.75(1.60)

14.73
(2.06)**

51
52
53
54
55
56
57
58
59
61

8.08(1.88)*
3.01(1.15)
1.62(2.59)**
7.44(1.59)
0.46(0.79)
8.46(1.36)
0.07(0.13)
0.38(0.72)
5.50(2.03)**
1.79(0.17)

3.92(1.54)

4.18(1.64)*

0.76(0.29)

1.52(0.59)

1.35(0.55)

5.66(0.55)

9.14(0.88)

9.32(0.92)

21.79
(2.15)**

36.21(3.64)**

62
63

0.69(1.12)
5.85(1.29)

2.03(0.44)

0.13(0.03)

0.92(0.20)

4.69(1.04)

7.59(1.71)*

64
65
66

1.91(0.90)
1.67(1.55)
7.53
(2.11)**
1.22(0.81)
2.92
(2.40)**
0.63(1.02)
0.31(0.25)
0.37(0.08)
1.47(0.26)
0.98(1.57)

2.46(1.20)

3.19(1.68)*

3.21(1.69)*

3.15(1.66)*

8.92(2.15)**
8.78(1.58)

6.15(1.46)

03
04
05

21

67
68
69
71
72
73
74

POSt9

4.16(0.53)
18.18
(1.77)*

5.03
(2.28)**

10.61
(2.36)**

(continued on next page)

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 4 (continued)
Code

Short-run coecient estimates

POSt

75
76
77
78
79
81
82
83
84
85
87
88
89
93
96
97

3.74
(1.71)*
1.67(1.99)**
2.56
(1.86)*
0.08(0.04)
8.04
(2.40)**
4.31(1.71)*
8.69(1.50)
10.56
(1.63)
9.61(1.83)*
3.53(1.26)
0.89(0.31)
0.49(0.58)
3.33
(1.65)*
1.15(1.52)
44.56
(1.66)*
0.98(0.21)

POSt1

POSt2

POSt3

POSt4

POSt5

POSt6

POSt7

POSt8

POSt9

0.09(0.08)

2.62
(2.09)**

0.86(0.69)

2.05(1.65)*

2.22(1.81)*

1.14(0.93)

0.98(0.80)

1.94(1.63)

4.10
(3.47)**

0.33(0.06)

5.72(1.01)

4.65(0.83)

4.89(0.74)

13.22
(2.04)**

2.42(0.37)

12.81
(2.30)**
12.55
(1.98)**

6.18
(2.15)**

3.35(0.73)

Notes: Numbers inside parentheses are the absolute values of the t-ratios. The critical value of standard t-ratio is 1.64 (1.96) at the 10% (5%) significance level.
*
Indicates signicance at the 10% level.
**
Indicates signicance at the 5% level.

clearly supports the short-run asymmetric eects of exchange rate changes in this industry. Indeed, short-run asymmetric eects are
evidenced in almost all industries due to the fact that estimates attached to POS are dierent from those attached to NEG, either
in size or in sign. Furthermore, the traditional denition of the J-curve is now supported in 13 industries coded 02 (Dairy products),
06 (Sugar), 08 (Feeding stu for animals), 43 (Animal or vegetable oil), 61 (Leather), 72 (Machinery specialized), and 82 (Furniture)
from Table 4 and 05 (Vegetables and fruits), 22 (Oil seeds), 32 (Coal), 56 (Fertilizers), and 89 (Miscellaneous) from Table 5. In these
industries negative or insignicant coecient estimates at lower lags are followed by signicantly positive estimates at higher lags.
Thus, compared to ve cases from the linear model, the nonlinear model provides more support for the traditional denition of the
J-curve.15 Whether the J-curve eect is present or not, we ask, in how many of the 36 industries the short-run asymmetric eects last
into the long-run? To this end, we turn to Table 6 and normalized long-run estimates of the nonlinear ARDL model.
From the long-run estimates we gather that there are 29 industries in which either the POS variable or the NEG variable carries a
signicant long-run coecient estimate and in 15 cases at least one of the estimates is positive, supporting the new denition of the
J-curve due to Bahmani-Oskooee and Fariditavana (2016), i.e., short-run insignicant eects combined with positive coecient of
either NEG or POS variable. These 15 industries are coded as 01 (Meat), 06 (Sugar), 08 (Feeding stu for animals), 21 (Hides and
skins), 25 (Pulp and waste paper), 29 (Crude animal), 33 (Petroleum and petroleum products), 34 (Gas), 42 (Fixed vegetable oils),
53 (Dyeing, tanning, and colouring materials), 63 (Cork and wood manufactures), 77 (Electric machinery), 81 (Prefabricated
buildings), 83 (Travel goods), and 87 (Professional instruments). Included in this list are the two largest industries, i.e., 33
(Petroleum and petroleum products with 23.38% trade share) and 77 (Electrical machinery with 17.37% trade share) and as can be
seen, while ringgit depreciation has signicantly favorable eects on both industries trade balances, ringgit appreciation does not
and this supports long-run asymmetric eects of exchange rate changes. Note that the results from the linear model revealed that
exchange rate had no signicant long-run eects on the trade balance of industry 77 (Electrical machinery with 17.37% trade share).
Like previous research, if we had to rely upon only the linear model, we would have stopped here. However, once we consider the
nonlinear model, clearly this industry benets from ringgit depreciation. Are these long-run asymmetric eects signicant?
The results of the Wald test applied to the equality of normalized long-run estimates attached to the POS and NEG variables,
appear in Table 7 under Wald-L. From this column we gather that the Wald statistic is signicant in 18 industries, supporting the
long-run asymmetric eects in these cases. These industries are coded as 01 (Meat), 05 (Vegetables and fruits), 06 (Sugar), 09
(Miscellaneous edible), 23 (Crude rubber), 24 (Cork and wood), 27 (Crude fertilizers), 56 (Fertilizers), 58 (Plastics), 63 (Cork and
wood manufactures), 64 (Paper, etc.), 69 (Manufactures of metal), 71 (Power generating machinery), 72 (Machinery specialized), 73
(Metalworking machinery), 74 (General industrial machinery), 82 (Furniture), and 84 (Articles of apparel and clothing accessories).

15
Note that as argued by Bahmani-Oskooee and Fariditavana (2016) the expected signs of POS and NEG variables in the nonlinear model are the same as that of
the REX in the linear model. This makes the same denition of the J-curve to suit to all three variables.

10

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 5
Short-run coefficient estimates of ringgit depreciation in the Nonlinear ARDL model (3).
Ind.

NEGt

00
01

5.54
(2.43)**
9.44(0.62)

02
03
04
05

0.32(0.24)
1.36(1.22)
1.44(1.44)
1.60(0.24)

06
07
08
09
11
12

29
32

2.14(1.15)
0.62(0.94)
1.79(2.38)**
0.53(1.25)
0.71(0.92)
5.83
(3.00)**
8.46(2.78)**
18.13
(1.34)
11.17(1.01)
11.85
(1.13)
6.10(2.18)**
0.08(0.06)
0.27
(5.03)**
21.01
(2.11)**
2.11(1.67)*
12.35(0.64)

33

6.34(0.77)

34
41

1.91(1.59)
16.55(1.37)

42
43
51
52
53

**

5.72(3.40)
1.11(0.82)
0.24(0.32)
0.46(1.01)
020(0.12)

54
55
56

1.17(1.32)
0.67(1.70)
0.75(0.04)

57
58
59
61
62
63
64

0.44(1.29)
0.17(0.53)
0.74(1.54)
3.66(1.76)*
0.46(1.11)
3.53(3.25)**
0.49(0.27)

65

1.48
(1.96)**
0.08(0.12)
1.22(0.81)
5.57(1.49)
3.21(1.69)*
1.56(1.51)
3.83(1.08)
5.26
(4.62)**
0.26(0.64)
2.58(1.38)
0.16(0.27)
5.12(4.30)**

21
22
23
24
25
26
27
28

66
67
68
69
71
72
73
74
75
76
77

NEGt-1

NEGt-2

NEGt-3

NEGt-4

NEGt-5

NEGt-6

NEGt-7

13.84
(0.99)
16.34(1.44)
31.47
(2.92)**

19.95(1.42)

25.14
(1.81)*

29.21
(2.10)**

40.91
(2.84)**

21.67
(1.57)

15.23
(0.79)
0.54(0.06)

1.43(0.07)

34.25
(1.75)*
17.91
(2.18)**

13.46(0.67)

46.87
(2.39)**

9.54(0.48)

77.84
(4.02)**

28.18
(2.27)**

12.74(1.01)

4.82(0.38)

33.61
(2.74)**

4.63
(2.72)**

2.09(1.24)

3.10(1.84)*

0.54(0.32)

1.30(0.77)

3.09
(1.79)*

0.93(0.54)

38.06(1.89)*

0.58(0.03)

29.37
(1.48)

43.98
(2.19)**

5.89(1.56)

7.47(2.19)**

8.45(2.44)**

NEGt-8

NEGt-9

3.27(1.93)*

4.42(2.59)**

30.59
(2.14)**

15.35
(2.31)**

13.88
(0.99)
17.88(1.62)
21.05
(1.94)*

22.36
(2.19)**

0.81(0.09)

17.63
(2.10)**

5.20
(2.81)**

6.59(1.81)*

5.68(1.68)*

(continued on next page)

11

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 5 (continued)
Ind.

NEGt

NEGt-1

NEGt-2

NEGt-3

NEGt-4

NEGt-5

NEGt-6

NEGt-7

NEGt-8

NEGt-9

78
79

0.48(0.41)
7.64
(3.38)**
18.09
(2.34)**
8.38(1.71)*

18.90
(2.40)**
3.90(1.71)*

8.45(1.64)*

10.09
(1.98)**

16.26
(3.11)**

5.99(1.26)

0.93(0.19)

10.15
(2.23)**

2.71
(0.60)

11.34
(2.47)**

1.30(0.81)

1.35(0.83)

0.74(0.46)

3.76(2.37)**

2.63(1.64)*

81
82
83
84
85
87
88
89
93
96
97

3.23(2.60)**
10.17
(2.23)**
1.42(0.78)
2.33(4.08)**
0.44(0.77)
2.10(1.22)
0.27(0.54)
3.35(0.73)
3.55(0.24)

34.97
(2.37)**

Notes: Numbers inside parentheses are the absolute value of the t-ratios. The critical value of standard t-ratio is 1.64 (1.96) at the 10% (5%) significance level.
*
Indicates signicance at the 10% level.
**
Indicates signicance at the 5% level.

Reported in this table is also the Wald-S statistic to determine, in how many industries there is evidence of short-run cumulative or
impact asymmetric eects. As can be seen, the evidence points at only 10 industries coded 23 (Crude rubber), 27 (Crude fertilizers),
28 (Metalliferous ores and metal scrap), 54 (Medicinal and pharmaceutical products), 73 (Metalworking machinery), 76
(Telecommunication and sound recording), 77 (Electrical machinery), 83 (Travel goods), 89 (Miscellaneous manufactured articles),
and 96 (Coins). Furthermore, from the short-run estimates reported in Tables 4, 5, we gather that there is also evidence of
adjustment asymmetry in 31 industries due to the fact that POS and NEG take dierent lags.
The long-run estimates of the nonlinear model reported in Table 6 are all valid since cointegration is supported either by the F
test or ECMt-1 reported in Table 7. At least one of these tests is signicant in any nonlinear model in which there is at least one
signicant long-run coecient estimate. Furthermore, both the LM and RESET tests reveal that in most models there is a lack of
autocorrelation and most models are correctly specied. Estimates seem to be stable also.
4. Summary and conclusion
Due to adjustment lags and currency contracts, currency depreciation is said to worsen the trade balance rst and improve it
later, hence the J-curve phenomenon. Traditionally, the phenomenon was tested by just using a VAR trade balance model where the
phenomenon was veried if the exchange rate carried negative coecient at lower lags and positive coecient at higher lags. Once
error-correction modeling and cointegration was introduced, the denition of the J-curve was modied to mean short-run
deterioration combined with long-run improvement. Now that asymmetry cointegration has been advanced, the denition has also
been modied further to mean short-run deterioration or insignicant eects combined with long-run improvement only due to only
depreciation or short-run insignicant eects and long-run deterioration only due to appreciation. The last approach which requires
separating currency depreciations from appreciations and using a nonlinear trade balance model, usually yields more support for the
J-curve. This approach also allows us to determine if exchange rate changes have symmetric or asymmetric eects.
One previous study which tried to assess all of the above issues between Malaysia and each of its 10 largest trading partners, did
not nd any link between the real bilateral exchange rate and its bilateral trade balance with its largest trading partner, Singapore.
Suspecting that those results may suer from aggregation bias, we disaggregate the trade ows between Malaysia and Singapore by
commodity and consider the trade balances of each of the 65 industries that trade between Malaysia and Singapore. These 65
industries together engage in almost 91% of the trade. Using monthly data over April 2000December 2014 period, the linear ARDL
approach of Pesaran et al. (2001) and the Nonlinear ARDL approach of Shin et al. (2014), our ndings could be best summarized by
saying that rst, we found evidence of short-run asymmetric eects of exchange rate changes in almost all industries. Second,
signicant short-run impact or cumulative asymmetry was established in 10 industries. Third, adjustment asymmetry was found in
31 industries. Fourth, signicant long-run asymmetric eects were established in 20 industries. Finally, asymmetry analysis revealed
that while ringgit depreciation against the Singapore dollar has favorable eects on the trade balance of the two largest industries,
ringgit appreciation does not. These two largest industries, i.e., Petroleum and petroleum products with 23.38% share of trade and
Electrical machinery with 17.37% share of trade together account for little over 40% of trade between two countries. These
interesting and important ndings in this study that is due to disaggregation by commodity were hidden in the previous research
which used aggregate Malaysia-Singapore trade ows and must be extended to the experience of other partners. Not only
disaggregation yields signicant outcome, but it also reveals that dierent industry's trade react dierently to exchange rate changes.
Some symmetrically and some asymmetrically. One main reason could be the fact, dierent industry's import and export prices react
12

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 6
Long-run coefficient estimates of Nonlinear ARDL model (3).
Industries

Trade Share

Constant

Ln IPMY

Ln IPSG

POS

NEG

00-Live animals

0.25%

0.56(0.04)

11.91(1.50)

27.97(1.37)

32.85(2.23)**

01-Meat and meat preparations

02-Dairy products and birds eggs
03-Fish, crustaceans and molluscs, n.e.s.
04-Cereals and cereal preparations
05-Vegetables and fruits

0.04%
0.27%
0.19%
0.21%
0.31%

1.82(0.34)
7.34(3.03)**
10.50(2.33)**
6.89(4.96)**
6.96(2.33)**

5.06(1.72)*
2.01(1.46)
5.27(2.19)**
2.99(3.75)**
4.24(2.01)*

14.64
(2.15)**
6.51(2.86)**
0.85(0.99)
0.12(0.08)
0.11(0.22)
0.34(0.35)

18.74(3.96)**
0.54(0.24)
4.56(1.28)
2.04(1.53)
9.26(3.53)**

06-Sugars, sugar preparations, n.e.s.

07-Coee, tea, cocoa, spices, n.e.s.
08-Feeding stu for animals, n.e.s.
09-Miscellaneous edible, n.e.s.
11-Beverages
12-Tobacco and tobacco, n.e.s.
21-Hides, skins and furskins, raw
22-Oil seeds and oleaginous fruits
23-Crude rubber, n.e.s.
24-Cork and wood
25-Pulp and waste paper
26-Textile bres, n.e.s.
27-Crude fertilizers, n.e.s.

0.09%
0.63%
0.04%
0.60%
0.71%
0.10%
0.01%
0.01%
0.02%
0.06%
0.01%
0.05%
0.10%

2.24(1.03)
0.62(0.38)
7.77(4.67)**
0.05(0.04)
8.53(2.77)**
5.02(1.69)*
3.01(0.48)
4.67(0.57)
9.38(2.19)**
5.28(1.08)
2.56(0.39)
1.11(0.29)
10.79(1.46)

2.58(2.05)**
1.28(1.42)
4.66(5.12)**
0.89(1.18)
4.90(2.98)**
2.83(1.73)*
1.47(0.42)
2.02(0.45)
5.98(2.59)**
2.20(0.80)
2.47(0.68)
0.72(0.33)
9.89(2.61)**

0.23(0.29)
0.56(0.85)
0.82(1.49)
0.81(1.88)*
0.61(0.63)
0.80(0.66)
0.90(0.42)
0.59(0.21)
0.50(0.36)
2.09(1.09)
2.42(0.92)
0.13(0.09)
3.82(1.16)

28-Metalliferous ores and metal scrap

29-Crude animal, n.e.s.
32-Coal, coke and briquettes
33-Petroleum, petroleum products, n.e.s.
34-Gas, natural and manufactured
41-Animal oils and fats
42-Fixed vegetable oils and fats, crude, n.e.s.
43-Animal or vegetable oilsand fats, n.e.s.
51-Organic chemicals
52-Inorganic chemicals
53-Dyeing, tanning and colouring materials
54-Medicinal and pharmaceutical products
55-Essential oils and resinoids, n.e.s.
56-Fertilizers, manufactured
57-Plastics in primary forms
58-Plastics in non-primary forms
59-Chemical materials and products, n.e.s.
61-Leather, leather manufactures, n.e.s.

0.08%
0.06%
0.02%
23.38%
0.97%
0.00%
0.37%
0.07%
1.74%
0.11%
0.33%
0.16%
0.37%
0.04%
1.40%
0.30%
0.56%
0.00%

5.42(0.89)
10.75(2.38)**
11.51(0.28)
1.09(0.39)
3.29(0.96)
6.97(0.55)
1.79(0.57)
0.53(0.07)
2.28(2.44)**
3.61(3.12)**
0.61(0.44)
1.39(1.06)
1.21(1.44)
38.29(2.64)**
0.18(0.24)
0.98(0.97)
1.01(1.66)*
16.03(2.44)**

4.72(2.04)**
1.40(0.84)
21.39(1.47)
2.38(2.34)**
1.18(1.07)
3.23(0.63)
0.63(0.55)
7.18(1.62)
0.02(0.06)
1.34(3.14)**
0.48(0.87)
0.04(0.07)
0.29(0.94)
9.84(2.12)**
0.01(0.02)
0.61(1.71)
0.38(1.71)*
3.71(1.49)

62-Rubber manufactures, n.e.s.

63-Cork and wood manufactures, n.e.s.
64-Paper, paperboard, and articlesof, n.e.s.
65-Textile yarn, fabrics, made-uparicles, n.e.s.
66-Non-metallic mineral manufactures, n.e.s.
67-Iron and steel
68-Non-ferrous metals
69-Manufactures of metal, n.e.s.
71-Power generating machinery, n.e.s.
72-Machinery specialized, n.e.s.
73-Metalworking machinery

0.18%
0.17%
0.55%
0.09%
0.94%
0.57%
2.03%
1.56%
0.43%
1.54%
0.40%

1.91(1.98)**
3.37(1.87)*
2.68(2.12)**
1.14(0.47)
1.95(0.29)
2.78(0.59)
1.01(0.54)
0.43(0.43)
4.69(1.75)*
0.25(0.28)
2.89(1.93)*

6.46(1.84)*
6.23(2.37)**
10.23(0.45)
2.84(1.77)*
2.58(1.39)
0.12(0.02)
0.91(0.50)
5.12(1.16)
1.06(2.00)**
3.02(4.85)**
0.18(0.24)
0.86(1.34)
0.81(1.66)
11.91(1.89)*
0.36(0.88)
0.10(0.17)
0.80(2.27)**
12.00
(3.18)**
1.16(2.08)**
0.24(0.24)
1.25(1.74)*
0.88(0.64)
1.98(0.50)
1.03(0.38)
1.31(1.20)
0.78(1.31)
1.56(1.03)
0.69(1.31)
0.84(1.03)

29.15(4.02)**
1.57(0.46)
9.40(1.66)*
0.56(0.28)
12.98
(3.24)**
6.38(2.03)**
2.29(1.07)
5.57(2.55)**
0.15(0.08)
5.23(1.31)
8.14(1.97)**
19.49(2.32)**
2.05(0.18)
6.79(1.21)
8.92(1.47)
11.37(1.33)
2.24(0.42)
40.54
(3.96)**
4.72(0.53)
7.85(1.21)
66.49(1.17)
6.54(1.61)
4.35(0.99)
13.98(0.83)
16.19(3.64)**
0.23(0.02)
1.03(0.79)
0.05(0.03)
5.68(2.98)**
2.48(1.49)
0.95(0.78)
18.00(1.23)
0.12(0.13)
1.14(0.78)
1.13(1.29)
9.49(1.25)

1.06(1.15)
6.84(4.35)**
1.32(1.04)
5.73(2.54)**
0.62(0.12)
6.67(1.48)
5.01(2.78)**
0.11(0.12)
5.65(2.29)**
0.14(0.15)
6.58(5.27)**

74-General industrial machinery, n.e.s.

75-Oce machines and automatic equipment, n.e.s.
76-Telecommunications and sound recording, n.e.s.
77-Electrical machinery, apparatus and appliances,
n.e.s
78-Road vehicles, n.e.s.
79-Others transport equipment
81-Prefabricated buildings, sanitary, n.e.s.
82-Furniture and parts thereof
83-Travel goods, handbags, n.e.s.
84-Articles of apparel and clothing accessories
85-Footwear
87-Professional instruments, n.e.s.
88-Photographic apparatus, equipment, n.e.s.
89-Miscellaneous manufactured articles, n.e.s.

1.67%
3.21%
2.00%
17.37%

2.27(2.91)**
2.18(1.37)
10.37(2.48)**
0.68(0.56)

1.16(2.74)**
1.55(1.74)*
4.41(2.04)**
1.84(2.91)**

0.20(0.79)
0.79(1.33)
2.15(0.95)
1.55(3.07)**

1.61(1.16)
8.86(3.69)**
4.19(2.14)**
6.48(1.91)*
7.53(1.01)
5.53(0.83)
6.85(2.55)**
1.53(1.07)
1.14(0.27)
0.95(0.68)
10.22
(5.32)**
1.57(1.51)
0.51(0.22)
10.62(1.43)
1.39(0.89)

0.28%
0.54%
0.10%
0.32%
0.04%
0.20%
0.06%
1.60%
0.93%
2.58%

1.54(0.62)
0.64(0.27)
4.03(2.21)**
7.46(4.63)**
2.40(1.29)
0.29(0.24)
13.17(1.52)
2.17(2.13)**
1.32(1.27)
1.96(3.04)**

0.60(0.45)
0.97(0.71)
2.45(2.42)**
1.91(2.10)**
1.44(1.41)
0.21(0.31)
2.42(0.54)
1.05(1.79)*
1.23(2.37)**
1.09(3.00)**

0.86(1.11)
0.81(0.93)
0.98(1.38)
1.51(2.44)**
0.56(0.74)
0.73(1.68)*
4.62(1.44)
0.09(0.25)
0.57(1.22)
0.10(0.43)

13

0.13(0.36)
0.68(1.13)
0.58(1.19)
0.18(0.21)
1.49(0.78)
0.83(0.49)
0.82(1.21)
1.08(2.94)**
1.45(1.14)
0.60(1.79)*
1.13(1.90)*

2.42(1.15)
1.30(0.94)
3.54(2.48)**
1.53(1.37)
2.28(0.87)
8.36(3.10)**
15.95(2.90)**
0.40(0.05)
0.43(0.12)
2.96(0.71)
12.80(2.29)**
0.22(0.06)
27.53(4.05)**
4.15(0.69)
8.57(1.96)**
41.83(1.10)
7.37(2.67)**
4.92(1.74)*
12.99(1.19)
11.77(3.93)**
5.98(0.66)
0.27(0.32)
0.96(1.03)
4.80(3.87)**
1.58(1.40)
1.37(1.68)*
1.64(0.19)
0.78(1.28)
0.50(0.51)
0.90(1.54)
11.15(2.05)**

0.42(0.63)
1.07(0.71)
1.01(0.25)
1.97(1.83)**

0.11(0.04)
0.82(0.41)
8.46(2.49)**
8.04(3.54)**
4.39(1.75)*
3.86(2.38)**
3.24(1.34)
0.47(0.29)
6.68(2.53)**
4.77(2.76)**
0.85(0.49)
1.43(1.24)
13.69(1.17)
5.51(0.77)
**
5.53(3.62)
4.39(4.26)**
0.77(0.59)
0.69(0.77)
0.87(0.93)
1.11(1.78)**
(continued on next page)

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 6 (continued)
Industries

Trade Share

Constant

Ln IPMY

Ln IPSG

POS

NEG

93-Special transactions and commodities, n.e.s.

96-Coin, except gold coin, unissued
97-Gold, non-monetary

0.17%
0.005%
0.92%

10.24(2.79)**
50.24(3.49)**
16.27(2.39)**

5.44(2.60)**
22.55(2.93)**
9.58(2.59)**

0.36(0.27)
4.36(1.02)
0.11(0.04)

7.97(1.46)
1.86(0.11)
1.94(0.21)

1.88(0.52)
8.18(0.74)
8.93(1.49)

Notes: Numbers inside parentheses are the t-ratios. The critical value of standard t-ratio is 1.64 (1.96) at the 10% (5%) significance level.
*
Indicates signicance at the 10% level.
**
Indicates signicance at the 5% level.
Table 7
Diagnostic statistics associated with Nonlinear ARDL model (3).
Industries
00-Live animals
01-Meat and meat preparations
02-Dairy products and birds eggs
03-Fish, crustaceans and molluscs, n.e.s.
04-Cereals and cereal preparations
05-Vegetables and fruits
06-Sugars, sugar preparations, n.e.s.
07-Coee, tea, cocoa, spices, n.e.s.
08-Feeding stu for animals, n.e.s.
09-Miscellaneous edible, n.e.s.
11-Beverages
12-Tobacco and tobacco, n.e.s.
21-Hides, skins and furskins, raw
22-Oil seeds and oleaginous fruits
23-Crude rubber, n.e.s.
24-Cork and wood
25-Pulp and waste paper
26-Textile bres, n.e.s.
27-Crude fertilizers, n.e.s.
28-Metalliferous ores and metal scrap
29-Crude animal, n.e.s.
32-Coal, coke and briquettes
33-Petroleum, petroleum products, n.e.s.
34-Gas, natural and manufactured
41-Animal oils and fats
42-Fixed vegetable oils and fats, crude, n.e.s.
43-Animal or vegetable oilsand fats, n.e.s.
51-Organic chemicals
52-Inorganic chemicals
53-Dyeing, tanning and colouring materials
54-Medicinal and pharmaceutical products
55-Essential oils and resinoids, n.e.s.
56-Fertilizers, manufactured
57-Plastics in primary forms
58-Plastics in non-primary forms
59-Chemical materials and products,n.e.s.
61-Leather, leather manufactures, n.e.s.
62-Rubber manufactures, n.e.s.
63-Cork and wood manufactures, n.e.s.
64-Paper, paperboard, and articlesof, n.e.s.
65-Textile yarn, fabrics, made-uparicles, n.e.s.
66-Non-metallic mineral manufactures, n.e.s.
67-Iron and steel
68-Non-ferrous metals
69-Manufactures of metal, n.e.s.
71-Power generating machinery, n.e.s.
72-Machinery specialized, n.e.s.
73-Metalworking machinery
74-General industrial machinery, n.e.s.
75-Oce machines and automatic equipment, n.e.s.
76-Telecommunications and sound recording, n.e.s.
77-Electrical machinery, apparatus and appliances, n.e.s
78-Road vehicles, n.e.s.
79-Others transport equipment
81-Prefabricated buildings, sanitary, n.e.s.
82-Furniture and parts thereof

F
*

3.89
15.04**
8.97**
3.82*
4.82**
3.95*
26.82**
6.03**
7.63**
2.67
3.66
17.49**
11.89**
7.29**
6.05**
7.69**
10.18**
2.97
4.57**
3.57
3.08
1.49
9.93**
5.57**
2.98
6.58**
2.09
6.22**
6.53**
3.32
4.99**
7.09**
4.84**
6.72**
3.23
22.10**
3.51
6.08**
4.85**
1.54
2.56
1.67
1.57
9.38**
3.92*
2.94
6.79**
20.62**
9.35**
2.47
1.68
2.32
12.46**
30.46**
17.11**
4.12**

ECMt-1

LM

RESET

CSM (SQ)

Adj. R2

0.17(3.49)
0.61(8.58)**
0.59(6.55)**
0.29(4.43)**
0.71(5.45)**
0.49(4.14)**
0.88(11.17)**
0.48(5.39)**
0.51(6.35)**
0.35(3.73)*
0.31(3.79)**
0.69(9.49)**
0.53(7.81)**
0.39(5.95)**
0.57(5.43)**
0.51(6.12)**
0.48(7.05)**
0.38(3.82)**
0.27(5.03)**
0.32(4.46)**
0.25(3.97)**
0.11(2.74)
0.59(7.03)**
0.39(5.10)**
0.23(3.59)*
0.48(5.81)**
0.18(1.74)
0.87(5.39)**
0.49(5.59)**
0.28(4.00)**
0.74(4.93)**
0.49(5.81)**
0.47(3.24)
0.57(5.57)**
0.33(3.79)*
0.82(10.61)**
0.33(4.05)**
0.43(5.38)**
0.52(4.74)**
0.28(3.07)
0.26(3.28)
0.13(2.11)
0.22(2.13)
0.43(6.59)**
0.41(4.57)**
0.28(2.21)
0.74(5.78)**
0.79(10.27)**
0.62(6.55)**
0.23(3.59)*
0.16(2.16)
0.21(3.43)
0.58(7.98)**
0.95(11.99)**
0.98(9.17)**
0.58(5.47)**

4.77
39.32**
27.74**
18.44
21.97**
10.71
37.36**
17.62
19.00*
20.77*
16.61
12.83
44.47**
16.45
19.12*
20.09*
24.14**
8.02
6.76
8.70
12.14
10.16
67.57**
18.85*
16.66
23.19**
9.02
19.33**
11.69
11.78
12.19
21.51**
9.44
22.19**
20.02*
44.43**
20.87*
16.13
15.86
14.39
9.89
7.02
11.21
25.50**
12.73
14.84
14.75
38.37**
25.51**
19.11*
14.41
12.07
36.05**
58.18**
36.66**
13.84

1.83
1.63
3.14*
0.09
6.38**
7.36**
4.18**
2.42
0.49
9.22**
0.93
0.14
7.45**
7.39**
0.02
0.17
0.59
12.70**
0.001
4.29**
0.51
9.93**
12.46**
0.01
0.17
4.14**
4.44**
0.08
0.04
0.16
0.18
0.004
0003
4.71**
4.29**
1.01
1.54
0.82
3.76*
1.31
0.14
0.08
1.29
5.59**
17.74**
1.79
2.14
0.01
0.06
2.02
0.23
1.99
9.04**
3.30
0.61
0.12

(S)(S)
(S)(US)
(S)(US)
(S)(US)
(S)(US)
(S)(S)
(S)(US)
(S)(S)
(S)(S)
(S)(S)
(S)(US)
(S)(S)
(US)(S)
(S)(US)
(S)(S)
(S)(US)
(S)(US)
(S)(US)
(S)(S)
(S)(US)
(S)(US)
(S)(US)
(S)(US)
(S)(US)
(S)(S)
(S)(S)
(S)(US)
(S)(S)
(S)(S)
(S)(S)
(S)(US)
(S)(S)
(S)(US)
(S)(US)
(S)(US)
(S)(US)
(S)(S)
(S)(S)
(S)(US)
(S)(S)
(S)(S)
(S)(US)
(S)(S)
(S)(US)
(S)(US)
(US)(S)
(S)(S)
(S)(US)
(S)(US)
(S)(S)
(S)(S)
(S)(S)
(S)(S)
(S)(US)
(S)(S)
(S)(US)

0.07
0.09
0.25
0.19
0.42
0.57
0.21
0.41
0.21
0.36
0.24
0.38
0.10
0.14
0.28
0.28
0.08
0.27
0.11
0.20
0.10
0.13
0.02
0.15
0.26
0.21
0.25
0.40
0.33
0.25
0.34
0.19
0.52
0.38
0.17
0.21
0.51
0.19
0.35
0.33
0.19
0.10
0.31
0.03
0.27
0.41
0.32
0.23
0.31
0.09
0.29
0.23
0.14
0.18
0.27
0.39

14

Wald-S
1.94
0.25
0.02
0.003
0.49
1.65
1.59
0.61
2.57
0.61
0.06
0.16
0.27
1.36
4.62**
0.41
0.49
0.28
6.08**
11.09**
0.69
0.19
0.01
0.24
0.17
1.64
1.11
0.29
0.57
2.11
4.83**
0.12
0.86
0.23
0.07
0.26
2.05
0.01
1.92
0.96
0.37
0.88
0.45
0.14
2.14
0.79
0.54
3.29**
0.08
1.59
3.37**
3.58**
1.09
0.20
1.99
2.46
(continued on

Wald-L
0.01
5.19**
1.80
0.53
0.69
7.59**
2.83*
1.72
0.16
3.79**
0.04
0.45
0.03
0.43
7.04**
6.76**
0.37
1.04
4.45**
0.51
0.61
0.73
0.03
1.25
0.32
2.05
1.24
0.63
1.71
2.20
0.47
0.49
4.55**
3.89
20.99**
0.01
0.61
0.20
5.84**
7.69**
0.52
0.90
0.01
0.36
5.66**
2.64*
2.87*
13.91**
3.75**
0.72
2.60
0.70
0.32
1.04
0.01
7.01**
next page)

The Journal of Economic Asymmetries xx (xxxx) xxxxxxxx

M. Bahmani-Oskooee et al.

Table 7 (continued)
Industries

ECMt-1

LM

RESET

CSM (SQ)

Adj. R2

Wald-S

Wald-L

83-Travel goods, handbags, n.e.s.

84-Articles of apparel and clothing accessories
85-Footwear
87-Professional instruments, n.e.s.
88-Photographic apparatus, equipment, n.e.s.
89-Miscellaneous manufactured articles, n.e.s.
93-Special transactions and commodities, n.e.s.
96-Coin, except gold coin, unissued
97-Gold, non-monetary

16.68**
10.35**
1.62
7.27**
15.91**
7.23**
0.96
9.81**
10.72**

0.68(9.02)**
0.75(7.37)**
0.26(2.50)
0.53(5.76)**
0.63(8.98)**
0.52(6.47)**
0.14(2.91)
0.41(6.72)**
0.51(7.31)**

30.68**
31.78**
7.76
20.28**
27.27**
22.47**
9.29
24.43**
36.85**

0.14
1.61
0.06
0.02
0.37
6.82**
1.47
2.88*
3.46*

(S)(S)
(S)(S)
(S)(S)
(S)(US)
(S)(US)
(S)(S)
(S)(US)
(S)(US)
(S)(US)

0.15
0.30
0.44
029
0.15
0.21
0.13
0.25
0.13

6.37**
2.21
0.52
0.32
0.07
5.02**
0.01
3.86**
2.25

1.71
2.92*
0.83
1.01
0.53
0.21
3.09**
2.04
7.07**

Notes: a. The critical value of the F test at the 10% (5%) signicance level when there are three exogenous variables (k=3) is 3.77 (4.35). These come from Pesaran
et al. (2001).
b. Number inside the parenthesis next to ECMt-1 is the absolute value of the t-ratio, Its upper bound critical value is 3.66 (3.99) at the 10% (5%) signicance level
and this comes from Pesaran et al. (2001). Note that these values are for k=4.
c. LM is the Lagrange Multiplier test of residual serial correlation. It is distributed as 2 with 12 degrees of freedom. Its critical value at the 10% (5%) level is
18.55(21.03).
d. RESET is Ramsey's test for misspecification. It is distributed as 2 with one degree of freedom and its critical value at 10% (5%) level is 2.71 (3.84). These critical
values also apply to both Wald tests.
*
Indicates a signicant statistic at the 10% level.
**
Indicates a signicant statistic at the 5% level.

dierently to exchange rate changes as demonstrated by Bussiere (2013).

Appendix Data denition and sources
Monthly data over the period April-2000 to Dec-2014 are used to carry out the empirical exercise. The data are obtained from the
following sources:
a.
b.
c.
d.

External Trade Statistics, Department of Statistics Malaysia,

Datastream, Thomson Reuters,
International Financial Statistics (IFS), IMF.
Direction of Trade (DOT), IMF.

Variables
TBj=This is a measure of the trade balance of industry j dened as Malaysian imports of industry j from Singapore over
Malaysian exports of industry j to Singapore. For each of the 65 industries the data come from source a.
IPMY=Malaysian industrial production index is used as a measure of economic activity in the Malaysian economy. The data
come from source b.
IPSG=Singapore's industrial production index. The data come from source b.
REX=Real bilateral exchange rate between Malaysian ringgit and Singapore's dollar. It is dened as REXt =
ML

NEXt is nominal bilateral exchange rate dened as the number of Singapore dollar per ringgit. CPIt and CPIt
price levels in Malaysia and Singapore, respectively. A decline in REX reects a real depreciation of ringgit.

SG

(NEXt )(CPItML )
CPItSG

where

are measures for

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16