Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf

Deviation or misalignment of the exchange rate has a different unwanted implication towards the economic growth. The right choice of exchange rate regime will bring an economy back to the equilibrium and many economists claim that it is one of the factors for the positive economic development. In co...

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Main Authors:	Ummi Osman, Tamat Sarmidi
Format:	Article
Language:	English
Published:	Institut Kajian Rantau Asia Barat 2012
Online Access:	http://journalarticle.ukm.my/5915/ http://journalarticle.ukm.my/5915/ http://journalarticle.ukm.my/5915/1/3_tamat_tradebalance.pdf

id	ukm-5915
recordtype	eprints
spelling	ukm-59152016-12-14T06:39:51Z http://journalarticle.ukm.my/5915/ Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf Ummi Osman, Tamat Sarmidi, Deviation or misalignment of the exchange rate has a different unwanted implication towards the economic growth. The right choice of exchange rate regime will bring an economy back to the equilibrium and many economists claim that it is one of the factors for the positive economic development. In contrast, a long term misalignment or deviation of the real exchange rate from the nominal rate can lead to severe macroeconomic imbalances, lead to speculation attack and against the orthodoxy of macroeconomic parities. However the empirical findings of previous studies with regards to the relationship of exchange rate and trade balance are not conclusive and are inconsistent for different countries. Although theoretically, the strengthening of a currency is expected to contribute towards the improvement of trade balance, there are other factors influencing the environment that might produce different outcome. The main objective of this paper is to analyse the long run relationship between deviation of exchange rate and trade balance in the Gulf Cooperation Council (GCC) member countries. The GCC is one of the important world markets. The economy of the GCC has developed tremendously in which the average gross domestic production (GDP) for the period of 1980 – 2008 is more than 300 percentages and Malaysia has a special interest in the region. Using the Purchasing Power Parity (PPP) model, we empirically identify that the currency of Saudi Arabia, Kuwait and Qatar at most of the time are overvalued while Bahrain and Oman are on the opposite. The study also shows that all GCC member countries are enjoying positive trade balance. Utilising two-step Engel-Granger cointegration technique we find a significant long run relationship between the exchange rate deviation and trade balance for most of the member countries in the long run but not in the short-run. Institut Kajian Rantau Asia Barat 2012 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/5915/1/3_tamat_tradebalance.pdf Ummi Osman, and Tamat Sarmidi, (2012) Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf. Jurnal Antarabangsa Kajian Asia Barat, 4 (2). pp. 37-54. ISSN 2229-8924 http://www.ukm.my/ijwas/
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
language	English
description	Deviation or misalignment of the exchange rate has a different unwanted implication towards the economic growth. The right choice of exchange rate regime will bring an economy back to the equilibrium and many economists claim that it is one of the factors for the positive economic development. In contrast, a long term misalignment or deviation of the real exchange rate from the nominal rate can lead to severe macroeconomic imbalances, lead to speculation attack and against the orthodoxy of macroeconomic parities. However the empirical findings of previous studies with regards to the relationship of exchange rate and trade balance are not conclusive and are inconsistent for different countries. Although theoretically, the strengthening of a currency is expected to contribute towards the improvement of trade balance, there are other factors influencing the environment that might produce different outcome. The main objective of this paper is to analyse the long run relationship between deviation of exchange rate and trade balance in the Gulf Cooperation Council (GCC) member countries. The GCC is one of the important world markets. The economy of the GCC has developed tremendously in which the average gross domestic production (GDP) for the period of 1980 – 2008 is more than 300 percentages and Malaysia has a special interest in the region. Using the Purchasing Power Parity (PPP) model, we empirically identify that the currency of Saudi Arabia, Kuwait and Qatar at most of the time are overvalued while Bahrain and Oman are on the opposite. The study also shows that all GCC member countries are enjoying positive trade balance. Utilising two-step Engel-Granger cointegration technique we find a significant long run relationship between the exchange rate deviation and trade balance for most of the member countries in the long run but not in the short-run.
format	Article
author	Ummi Osman, Tamat Sarmidi,
spellingShingle	Ummi Osman, Tamat Sarmidi, Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf
author_facet	Ummi Osman, Tamat Sarmidi,
author_sort	Ummi Osman,
title	Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf
title_short	Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf
title_full	Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf
title_fullStr	Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf
title_full_unstemmed	Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf
title_sort	deviation of exchange rate and trade balance: evidence from the member countries of gulf cooperation council (gcc) lencongan kadar pertukaran dan imbangan dagangan: bukti dari negara majlis kerjasama negara-negara gulf
publisher	Institut Kajian Rantau Asia Barat
publishDate	2012
url	http://journalarticle.ukm.my/5915/ http://journalarticle.ukm.my/5915/ http://journalarticle.ukm.my/5915/1/3_tamat_tradebalance.pdf
first_indexed	2023-09-18T19:45:30Z
last_indexed	2023-09-18T19:45:30Z
_version_	1777405872790568960

Deviation of exchange rate and trade balance: evidence from the member countries of Gulf Cooperation council (GCC) Lencongan kadar pertukaran dan imbangan dagangan: bukti dari Negara Majlis Kerjasama Negara-Negara Gulf

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