Areendam Chanda
Louisiana State University
C. Justin Cook
University of California, Merced
Working Paper
Citation(s) not specified
JEL Code(s):
E2, E20, E21, E22, E23, E24, E25, E26, E27, E29, E5, E50, E51, E52, E58, E59, O17, O40, O47, R12

On November 8, 2016, the Indian government abruptly demonetized 86% of its currency in circulation in an attempt to reduce black money, corruption, and coun- terfeiting. Yet, 99% of the currency was eventually returned to banks. We use both, regional and household data to examine the medium-term effects of this policy. Us- ing monthly 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 about 4% increase in district GDP per capita. We also show the districts that experienced large deposit increases from demonetization are generally poorer, or worse off, in several widely used measures of socio-economic characteristics. Using a longitudinal survey of household expenditures and incomes, we also show that poorer households had larger increases in expenditures and incomes in the following eighteen months.

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