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...

This paper attempts to identify the relationship between the real exchange rate and trade balance in Malaysia from year 1955 to 2006. This study uses Unit Root Tests, Cointegration techniques, Engle-Granger test, Vector Error Correction Model (VECM), and impulse response analyses. The main...