Article Sidebar

Submitted
January 20, 2024
Accepted
April 9, 2024
Published
April 29, 2024
Download
Full text PDF
Statistic
Read Counter : 314 Download : 306

Downloads

Download data is not yet available.

Main Article Content

Abstract

Purpose ― This paper aims to empirically investigate the impact of currency swaps on international trade, given China's differential level of financial development and its currency swap partners.
Methods ― The study employes an empirical structural gravity model using datasets encompassing financial development, trade, and intuitive gravity equation variables for 27 countries from 1980 to 2013. The level of financial development and swaps was captured by the interaction term of the disaggregated measure of financial development, such as access, depth, and efficiency, each interacting with currency swaps.
Findings ― The findings suggest that currency swaps are essential for trade and exhibit a large trade effect, especially for countries with relatively low levels of financial development. The paper substantiates empirical evidence indicating disparities in financial development across countries, and such differences are important in determining trade patterns.
Implication ― Strong financial systems promote trade in advanced economies, whereas the opposite holds true for developing countries. The examination of the influence of financial systems on trade through empirical tests remains important on the research agenda of policymakers and researchers, especially those looking at industry-level import and export data.
Originality ― The study delves into the nexus between financial development and trade within the framework of the Central Bank bilateral currency swap network by highlighting the role of financial institutions and market size (depth), activity (access), and efficiency. In addition, it addresses the drawbacks of previous empirical research that largely focuses on the private credit-to-GDP ratio as a key proxy for financial development.

Keywords

Financial development central banks RMB bilateral currency swap line trade

Article Details

License

Copyright (c) 2024 Abdullahi Ahmed Mohammed

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Authors who publish with this journal agree to the following terms:

  1. Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-ShareAlike 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
  2. Authors are able to enter into separate, additional contractual arrangements for the non-exclusive distribution of the journal's published version of the work (e.g., post it to an institutional repository or publish it in a book), with an acknowledgement of its initial publication in this journal.
  3. Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work (See The Effect of Open Access).

Creative Commons License

Economic Journal of Emerging Markets by Center for Economic Studies, Universitas Islam Indonesia is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How to Cite
Mohammed, A. A. (2024). Financial development and central bank bilateral currency swaps: Is there trade effect?. Economic Journal of Emerging Markets, 16(1), 77–88. https://doi.org/10.20885/ejem.vol16.iss1.art7
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Aizenman, J., Jinjarak, Y., & Park, D. (2011). International reserves and swap lines: Substitutes or complements? International Review of Economics & Finance, 20(1), 5–18.
  2. Aizenman, J., & Lee, J. (2008). Financial versus monetary mercantilism: long‐run view of large international reserves hoarding. World Economy, 31(5), 593–611.
  3. Aizenman, J., & Pasricha, G. K. (2010). Selective swap arrangements and the global financial crisis: Analysis and interpretation. International Review of Economics & Finance, 19(3), 353–365.
  4. Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance? Journal of Economic Growth, 20(2), 105–148. http://www.jstor.org/stable/44113443
  5. Baltagi, B. H., Demetriades, P. O., & Law, S. H. (2009). Financial development and openness: Evidence from panel data. Journal of Development Economics, 89(2), 285–296.
  6. Becerra, O., Cavallo, E., & Scartascini, C. (2012). The politics of financial development: The role of interest groups and government capabilities. Journal of Banking & Finance, 36(3), 626–643.
  7. Beck, T. (2002). Financial development and international trade: Is there a link? Journal of International Economics, 57(1), 107–131.
  8. Beck, T., Demirgüç-Kunt, A., & Levine, R. (2010). Financial institutions and markets across countries and over time: The updated financial development and structure database. The World Bank Economic Review, 24(1), 77–92.
  9. Bencivenga, V. R., & Smith, B. D. (1991). Financial intermediation and endogenous growth. The Review of Economic Studies, 58(2), 195–209.
  10. Blackburn, K., & Hung, V. T. Y. (1998). A theory of growth, financial development and trade. Economica, 65(257), 107–124.
  11. Braun, M., & Raddatz, C. E. (2005). Trade liberalization and the politics of financial development (Vol. 3517). World Bank Publications.
  12. Čihák, M., Demirgüç-Kunt, A., Feyen, E., & Levine, R. (2012). Benchmarking financial systems around the world. World Bank Policy Research Working Paper, 6175.
  13. Darrat, A. F., Elkhal, K., & McCallum, B. (2006). Finance and macroeconomic performance. Some evidence for emerging markets. Emerging Markets Finance and Trade, 42(3), 5–28.
  14. Demetriades, P., & Andrianova, S. (2004). Finance and growth: what we know and what we need to know. In Financial development and economic growth: Explaining the links (pp. 38–65). Springer.
  15. Demirgüç-Kunt, A., & Levine, R. (2009). Finance and inequality: Theory and evidence. Annu. Rev. Financ. Econ., 1(1), 287–318.
  16. Destais, C. (2016). Central bank currency swaps and the international monetary system. Emerging Markets Finance and Trade, 52(10), 2253–2266.
  17. Do, Q.-T., & Levchenko, A. A. (2004). Trade and financial development. Available at SSRN 610391.
  18. Ductor, L., & Grechyna, D. (2015). Financial development, real sector, and economic growth. International Review of Economics & Finance, 37, 393–405.
  19. Fawzy, M., & Abd, T. (2021). Currency SWAP Agreement with China : A new paradigm to penetrate the Markets. 20(2), 267–279.
  20. Greenwood, J., & Jovanovic, B. (1990). Financial development, growth, and the distribution of income. Journal of Political Economy, 98(5, Part 1), 1076–1107.
  21. Guariglia, A., & Poncet, S. (2008). Could financial distortions be no impediment to economic growth after all? Evidence from China. Journal of Comparative Economics, 36(4), 633–657.
  22. Head, K., & Mayer, T. (2014). Gravity equations: Workhorse, toolkit, and cookbook. In Handbook of international economics (Vol. 4, pp. 131–195). Elsevier.
  23. Horn, S., Parks, B. C., Reinhart, C. M., & Trebesch, C. (2023). China as an international lender of last resort. National Bureau of Economic Research.
  24. Hussain, M., & Ahmed Mohammed, A. (2017). Oil and Non-Oil Foreign Direct Investment and Economic Growth in Nigeria: An Empirical Evidence from Autoregressive Distributed Lag Model.
  25. Jiang, L., Liu, S., & Zhang, G. (2023). The effect of bilateral currency swap agreements on foreign capital inflows: Evidence from China. Southern Economic Journal, 90(2), 444–473.
  26. Kiendrebeogo, Y. (2012). The effects of financial development on trade performance and the role of institutions.
  27. Kim, D.-H., Lin, S.-C., & Suen, Y.-B. (2010). Are financial development and trade openness complements or substitutes? Southern Economic Journal, 76(3), 827–845.
  28. Lai, E. L., & Yu, X. (2015). Invoicing currency in international trade: An empirical investigation and some implications for the renminbi. The World Economy, 38(1), 193–229.
  29. Levine, R. (1997). Financial development and economic growth: views and agenda. Journal of Economic Literature, 35(2), 688–726.
  30. Levine, R. (2003). More on finance and growth: more finance, more growth? Review-Federal Reserve Bank of Saint Louis, 85(4), 31–46.
  31. Levine, R. (2005). Finance and growth: theory and evidence. Handbook of Economic Growth, 1, 865–934.
  32. Liao, S., & McDowell, D. (2015). Redback rising: China’s bilateral swap agreements and renminbi internationalization. International Studies Quarterly, 59(3), 401–422.
  33. Lin, Z., Zhan, W., & Cheung, Y. (2016). China’s Bilateral Currency Swap Lines. China & World Economy, 24(6), 19–42.
  34. Lu, K., Wang, X., & Jin, L. (2023). The impact of China’s bilateral currency swap agreements on bilateral direct investments. Applied Economics, 1–17.
  35. Manova, K. (2013). Credit constraints, heterogeneous firms, and international trade. Review of Economic Studies, 80(2), 711–744.
  36. Mati, S., Ismael, G. Y., Masoud, S., Hamad, K. Q., Mohammed, A. A., & Hussaini, M. (2024). Revisiting ECOWAS-Eurozone exports in the light of asymmetry. Cogent Economics & Finance, 12(1), 2309812.
  37. Menyah, K., Nazlioglu, S., & Wolde-Rufael, Y. (2014). Financial development, trade openness and economic growth in African countries: New insights from a panel causality approach. Economic Modelling, 37, 386–394.
  38. Mohammed, A. A. (2016). Exchange Rate Pass Through into Consumer Price Inflation in Nigeria: An Empirical Investigation.
  39. Mohammed, A. A. (2019a). Central bank bilateral currency swap and trade flows: an implication for Renminbi internationalisation.
  40. Mohammed, A. A. (2019b). China’s Bilateral Currency Swap Agreement: Strategic Move to Foster Political and Financial Hegemony.
  41. Mohammed, A. A. (2019c). China’s Bilateral Currency Swap in International Trade Clearance: An Empirical Investigation.
  42. Mohammed, A. A., Mati, S., & Hussaini, M. (2017). Exchange Rate Pass-Through Elasticity to Domestic Consumer Prices i n Nigeria and Taylor ’ s Hypothesis : A Structural Vector Auto Regression Analysis #. 7(5), 201–210. https://doi.org/10.5923/j.economics.20170705.01
  43. Niroomand, F., Hajilee, M., & Al Nasser, O. M. (2014). Financial market development and trade openness: Evidence from emerging economies. Applied Economics, 46(13), 1490–1498.
  44. Perez Saiz, H., & Zhang, L. (2023). Renminbi Usage in Cross-Border Payments: Regional Patterns and the Role of Swaps Lines and Offshore Clearing Banks.
  45. Rajan, R. G., & Zingales, L. (2003). The great reversals: the politics of financial development in the twentieth century. Journal of Financial Economics, 69(1), 5–50.
  46. Svirydzenka, K. (2016). Introducing a new broad-based index of financial development. International Monetary Fund.
  47. World Bank. (2012). Global financial development report 2013: Rethinking the role of the state in finance. The World Bank
No Related Submission Found