The Effect of Exchange Rate on Malaysian GDP
Gross Domestic Product (GDP) is the total value of goods produced and services provided in a country during one
year. There are many macroeconomic factors that could affect GDP including the exchange rate. The studies on the
relationship between GDP and exchange rate produced mixed results; it could be positive, negative, or no relation at all.
However, most studies agreed that there is a positive relationship between these two variables. This study examines the
effect of exchange rate on Malaysian GDP using quarterly time series datasets spanning from Q3-2005 to Q1-2017. Two
simple time series techniques (trend analysis and simple linear regression) were employed. The trend analysis revealed that
the period Q3-2011 to Q1-2017 is more appropriate for this study. The simple linear regression verified that there is a strong
correlation between exchange rate and Malaysian GDP; 78.6% of the variation in Malaysian GDP is explained by the
exchange rate. This study concluded that there exists a strong positive effect of exchange rate on Malaysian GDP.
Keywords- Malaysian GDP, Exchange Rate, Trend Analysis, Simple Linear Regression.