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Does RMB Internationalization Promote Cross-Border Trade?

Author

Listed:
  • Jiao, Yang

    (Singapore Management University)

  • Kwon, Ohyun

    (Drexel University)

  • Lee, Saiah

    (Ulsan National Institute of Science & Technology)

Abstract

We investigate the internationalization of Renminbi (IoR) since 2006 by examining its increased utilization among Korean exporters to China. Employing proprietary data fromKorean customs, which includes detailed invoicing information, our analysis reveals that products invoiced, either fully or partially, in RMB have experienced more rapid export growth. Furthermore, firms adopting RMB invoicing also exhibit faster export growth to China after controlling for relevant observables. Our findings remain robust when employing an instrumental variable approach to address potential endogeneity concerns. With the help of a currency invoicing model that demonstrates different impact channels, we show that the increased trade volume is due to Chinese importers facing lower currency costs when purchasing RMB-invoiced products compared to USD-invoiced products.

Suggested Citation

  • Jiao, Yang & Kwon, Ohyun & Lee, Saiah, 2024. "Does RMB Internationalization Promote Cross-Border Trade?," School of Economics Working Paper Series 2024-13, LeBow College of Business, Drexel University.
    • Handle: RePEc:ris:drxlwp:2024_013
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    More about this item

    Keywords

    RMB internalization; invoicing currency; international trade;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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