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Who Gained from India’s Demonetization? Insights from Satellites and Surveys

Areendam Chanda and Justin Cook ()

MPRA Paper from University Library of Munich, Germany

Abstract: On November 8, 2016, the Indian government abruptly demonetized 86% of its currency in circulation in an attempt to reduce black money, corruption, and counterfeiting. Yet, 99% of the currency was eventually returned to banks. We exploit large regional variations in deposit growth as a result of demonetization to study the medium-term effects of this policy. Using night-light data, we show that districts which experienced higher deposit growth during the demonetization period recorded higher levels of economic activity in the year and a half that followed. We estimate a one standard deviation increase in deposits is associated with a 5% increase in district GDP per capita. Further, districts with larger rural population, agricultural and non-agricultural informal labor shares also recorded an increase in nighttime light activity. The results are also supported by household-level surveys on income and expenditures.

Keywords: Demonetization; Regional Economic Growth; Monetary Policy; Indian Economy; Difference in Difference; Informal Economy; Agriculture; Credit (search for similar items in EconPapers)
JEL-codes: E21 E26 E51 E65 O11 O13 O16 O17 O18 O5 (search for similar items in EconPapers)
Date: 2019-08-23
New Economics Papers: this item is included in nep-agr, nep-gro, nep-iue, nep-mac, nep-mon and nep-pay
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