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Liquidity Shocks and Firm Exports: Evidence from Cash Shortages during India's Demonetization

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Listed:
  • Ritam Chaurey
  • Ryan Kim
  • Pravin Krishna

Abstract

This paper examines how liquidity shocks caused by currency shortages impact exports. We explore this in the context of India’s 2016 currency demonetization, a sudden government policy announcement that led to 86% of the country’s currency in circulation being rendered illegal within hours. Our analysis uses novel data, including high-frequency customs transaction records matched with exporting firms and their balance sheets, as well as with inter-district domestic trade. While the cash shortages do not directly affect exporting firms, we find a significant and immediate decline in real exports for firms whose domestic customers experience liquidity shocks.

Suggested Citation

  • Ritam Chaurey & Ryan Kim & Pravin Krishna, 2024. "Liquidity Shocks and Firm Exports: Evidence from Cash Shortages during India's Demonetization," NBER Working Papers 33142, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33142
    Note: CF DEV IFM ITI ME
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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • F1 - International Economics - - Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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