China's Exports to Asian Islamic Economies: Do Bilaterally Currency Swap Agreements Matter?

This study examines the impact of bilateral currency swap agreements on China’s exports to 14 Islamic economies in Asia between 2015 and 2022. Using a gravity trade model, we find that the depreciation of the Chinese yuan (CNY) against the US dollar (USD) reduces China’s exports to these countries. However, bilateral currency swap agreements (BCSA) mitigate the negative effects of exchange rate change on trade flows. The result provides new evidence on the stabilizing effect of BCSA, offering insights into how these agreements can support trade resilience in volatile currency environments. The results also reveal a significant negative relationship between per capita income disparity and exports, consistent with the Linder Hypothesis, which posits that countries with similar income levels engage in more bilateral trade. Furthermore, China’s increasing foreign direct investment (FDI) in Islamic economies is positively associated with export growth, supporting Kiyoshi Kojima’s argument that FDI promotes international trade.