Liquidity Shocks and Firm Exports: Evidence from Cash Shortages during India's Demonetization

Ritam Chaurey, Ryan Kim and Pravin Krishna

No 33142, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines how liquidity shocks caused by currency shortages impact exports. We explore this in the context of India’s 2016 currency demonetization, a sudden government policy announcement that led to 86% of the country’s currency in circulation being rendered illegal within hours. Our analysis uses novel data, including high-frequency customs transaction records matched with exporting firms and their balance sheets, as well as with inter-district domestic trade. While the cash shortages do not directly affect exporting firms, we find a significant and immediate decline in real exports for firms whose domestic customers experience liquidity shocks.

JEL-codes: E50 F1 F14 O16 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-fdg, nep-int, nep-mon, nep-opm and nep-pay
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