The Effect of RMB Internationalization on Belt and Road Initiative: Evidence from Bilateral Swap Agreements

Abstract

ABSTRACTThis article evaluates the implication of renminbi (RMB) internationalization on economic integration between China and its partners, especially for Belt and Road countries. We collected data for all bilateral swap agreements between 2000 and 2016, and empirically explored the role of bilateral swap agreements in the bilateral trade flows between China and its partner countries. We examined the effects in gravity equation and found a significant positive effect of swap agreements on trade. In our benchmark model, the negotiations of swap agreement would improve 30.4% of bilateral trade values between China and its partners. For Belt and Road countries, the effect is even stronger. This effect is both statistically and economically significant. It is also robust for alternative measure of swap agreements and alternative estimation method. We argue that RMB swap agreements are beneficial for the economic integration between China and Belt and Road countries through facilitating bilateral trade.