The Volatility of the Malaysian Ringgit; Analyzing Its Impact on Economic Growth
Trishal Ashvin Kaur1, Vikneswaran Manual2, Meera Eeswaran3
1Trishal Ashvin Kaur, School of Accounting, Finance and Quantitative Studies, Asia Pacific University, Malaysia.
2Vikneswaran Manual, School of Accounting, Finance and Quantitative Studies, Asia Pacific University, Malaysia.
3Meera Eeswaran, School of Accounting, Finance and Quantitative Studies, Asia Pacific University, Malaysia.
Manuscript received on 04 February 2019 | Revised Manuscript received on 17 February 2019 | Manuscript Published on 19 February 2019 | PP: 82-88 | Volume-7 Issue-5S January 2019 | Retrieval Number: ES2129017519/19©BEIESP
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© The Authors. Blue Eyes Intelligence Engineering and Sciences Publication (BEIESP). This is an open access article under the CC-BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/)
Abstract: In an ideal Malaysian economy, the exchange rate functions at a stable, competitive and appropriate level to allow the nation to capitalize on growth and development capacities. However, the instability of market conditions and economic fundamentals have led to a volatile ringgit. In 2015, the ringgit was deemed Asia’s worst performer. With past researchers attributing exchange rates as crucial determinants of a country’s economic health, the impact of such volatility must be carefully analyzed and understood. This study investigates the impact of exchange rate volatility on economic growth in Malaysia from 2000-2016 due to the lack of research within this setting coupled with evidence of discrepancies (in terms of direction and significance of impact) among past literature. The multiple regression employs the Ordinary Least Squares (OLS) method of estimation whereas the absolute percentage change model is applied to measure volatility. To develop a more robust model, the study incorporates the variables of exports, imports and foreign direct investment (FDI) as explanatory variables cum transmission channels. While the empirical analysis reports that the direct relationship between volatility and growth is insignificant, volatility significantly reduces Malaysian exports. In the long-run, this could substantially deteriorate the Malaysian economy due to its heavy reliance on trade. The researcher concludes by providing several recommendations to ensure the stability of the ringgit to assist the growth prospects of the Malaysia economy.
Keywords: Exchange Rate, Volatility, Malaysia, Economic Growth.
Scope of the Article: Economics of Energy Harvesting Communications