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

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Abstract

On November 8, 2016, the Indian government abruptly demonetized 86-percent of its currency in circulation in an attempt to reduce black money, corruption, and counterfeiting. Yet, 99-percent 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 e?ects 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-percent 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.

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  • Areendam Chanda & C. Justin Cook, 2019. "Who Gained from India's Demonetization? Insights from Satellites and Surveys," Departmental Working Papers 2019-06, Department of Economics, Louisiana State University.
    • Handle: RePEc:lsu:lsuwpp:2019-06
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    2. Bajaj, Ayushi & Damodaran, Nikhil, 2022. "Consumer payment choice and the heterogeneous impact of India’s demonetization," Journal of Economic Dynamics and Control, Elsevier, vol. 137(C).

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    More about this item

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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