Determinants of Export: A Gravity Model Analysis of Malaysia’s Electrical and Electronic Industries

Abstract

In 2019, Malaysia's export scale was USD 237.8 billion, of which E&E products accounted for the largest share, 38%. This paper utilizes the Gravity Model to analyse the determinants of Malaysia's E&E industry exports. The results show that GDP and distance are in line with the theory of gravity model. Besides, Malaysia's E&E exports are based on the H-O theory; the exports can be increased by trading with countries with different factor endowments. The appreciation of the ringgit has harmed E&E exports. The domestic inflation rate will hurt exports, but the inflation rate of partner countries is the opposite. OFDI will greatly increase E&E exports, while IFDI will reduce it. This may be because Malaysia's main exports to FTA partners are petroleum products, chemicals, liquefied natural gas, and metal products. The results also show that the FTA signed by Malaysia has no impact on E&E exports. During the global financial crisis, Malaysia's E&E exports suffered a serious setback.

Keywords: E&E’s export; E&E industry; gravity model; Malaysia