Munich Personal RePEc Archive

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

Chanda, Areendam and Cook, Justin (2019): 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% 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.

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