US Dollar Dominance in Asia’s Trade Invoicing

This paper assesses the covariation between global value chains (GVCs) and multinational corporates (MNCs) with US dollar share in trade invoicing for Asia and Pacific economies. Using the Boz et al. (2020) dataset, the empirical analysis exploits cross-sectional heterogeneities that could explain the region’s high share of exports and imports invoiced in the US dollar. The results show that Asia and Pacific economies with greater GVC participation tend to have higher share of their exports and imports invoiced in US dollars, in contrast with non-regional economies wherein economies with higher GVC have significantly lower share of exports and imports invoiced in US dollar. In addition, Asia and Pacific economies with more MNCs usually have a significantly higher share of exports invoiced in US dollar. Among other reasons, one factor could be due to less trade integration among the Asian countries considered in the paper and absence of an alternative strong regional currency. Trade exposure of these countries continue to remain significant with the US and Europe. The findings offer new empirical evidence in the context of the Asia and Pacific region as well as relevance of the presence of MNCs.