Analysis on the determinants of currency invoicing in Korean trade

Kwang Myoung Hwang, Kyungmin Kim, Chung Seak Roh and Mijin Kim

The World Economy, 2019, vol. 42, issue 3, 876-900

Abstract: We investigate the determinants of currency invoicing in trade using import and export transactions data between Korea and its 30 major trading partners from 2000 to 2013. We find a noticeably different pattern of currency invoicing from advanced countries. For example, a large market share of Korean exporters in partner countries does not guarantee more use of the Korean won in currency invoicing. This might be attributed to a low degree of Korean won's internationalisation and the strong coalescing effect. We also observe that the higher the level of industry product differentiation, the weaker the coalescing motive. In addition, we verify that the share of invoicing in the currency of Korea's trading partner tends to be higher when the partner country has (i) a larger trade volume, (ii) higher level of financial development, (iii) lower inflation and lower price volatility and (iv) its own currency with lower transaction costs.

Date: 2019
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