Studying the Economic Impact of the Demonetization Across Indian Districts

Authors

Arnav Joshi, University of PennsylvaniaFollow

Abstract

This thesis studies the economic impact of the Indian demonetization which was a unique monetary event that made 86.9 percent of the total currency in circulation illegal tender overnight. The decision to demonetize high-value currency notes was taken by the Indian government on November 8th, 2016, leading to a severe shortage of cash. This thesis tries to analyze how the impact of the demonetization differed across districts in India and how the characteristics of those districts pertaining to education, electricity and tap water access, employment, and technology access can help explain these differences. The thesis uses satellite data on human-generated night light activity to quantify the impact of the demonetization on economic activity. It is found that districts that had a higher literacy rate and a higher percentage of households with access to electricity experienced a less severe economic impact of the demonetization. The economic impact due to the demonetization was more severe in districts with a higher percentage of marginal workers in their workforce. Amongst the various sectors of employment, agriculture, manufacturing, and construction were affected less severely by the demonetization compared to wholesale and retail trade. These insights have the potential to help policymakers minimize the negative economic impacts of a policy like the demonetization by understanding which districts or sub-geographical regions are more susceptible to these impacts.

Recommended Citation

Joshi, Arnav (2022) "Studying the Economic Impact of the Demonetization Across Indian Districts," Dartmouth Undergraduate Journal of Politics, Economics and World Affairs: Vol. 1: Iss. 4, Article 5.
Available at: https://digitalcommons.dartmouth.edu/dujpew/vol1/iss4/5