Validity of Marshal Lerner Hypothesis: An Empirical Study on Malaysia-United States Trade Balance

Asian Research Journal of Business Management Issue 3 (Vol. 1) 2014

9 Pages Posted: 9 Mar 2015

See all articles by Wai-Mun Har

Wai-Mun Har

Universiti Tunku Abdul Rahman (UTAR)

Teck Lee

Help University

Kah-Mun Chew

Tunku Abdul Rahman University (UTAR)

Huei-Shan Goh

Tunku Abdul Rahman University (UTAR)

Date Written: March 7, 2015

Abstract

The Marshall-Lerner theorem claimed that when a currency is depreciated or devalued, trade balance will improve if sum of price elasticity of exports and imports in absolute term is more than one. The study aims to investigate the validity of the Marshall-Lerner theorem between Malaysia and the United States (US) based on the following three specific objectives: (i) to investigate the relationship of domestic Gross Domestic Product (GDP), foreign (US) GDP and trade balance between Malaysia and the United States; (ii) to study the relationship between trade and exchange rate whether there is a positive or negative relationship between the two variables, hence validating the existence of the Marshall-Lerner condition in Malaysia. The results of the study showed an insignificant relationship between RER and TB. This implies the Marshall-Lerner condition does not hold in Malaysia. The study also revealed that domestic GDP (Y) is a significant variable with its expected negative relationship with trade balance. This indicates a significant relationship between domestic income and TB in Malaysia.

Suggested Citation

Har, Wai-Mun and Lee, Teck and Chew, Kah-Mun and Goh, Huei-Shan, Validity of Marshal Lerner Hypothesis: An Empirical Study on Malaysia-United States Trade Balance (March 7, 2015). Asian Research Journal of Business Management Issue 3 (Vol. 1) 2014, Available at SSRN: https://ssrn.com/abstract=2574988

Wai-Mun Har (Contact Author)

Universiti Tunku Abdul Rahman (UTAR) ( email )

Sungai Long Campus Lot PT 21144
Bandar Sg. Long, Cheras, Selangor D.E.,
Bandar Sungai Long, 43000
Malaysia

Teck Lee

Help University ( email )

Kompleks Pejabat Damansara (KPD) Jalan Dungun
Kuala Lumpur
Malaysia

Kah-Mun Chew

Tunku Abdul Rahman University (UTAR) ( email )

Sungai Long Campus Lot PT 21144
Bandar Sg. Long, Cheras, Selangor D.E.,
Bandar Sungai Long, 43000
Malaysia

Huei-Shan Goh

Tunku Abdul Rahman University (UTAR) ( email )

Sungai Long Campus Lot PT 21144
Bandar Sg. Long, Cheras, Selangor D.E.,
Bandar Sungai Long, 43000
Malaysia

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