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KDI 경제교육·정보센터

ENG
  • 경제배움
  • Economic

    Information

    and Education

    Center

전망·동향
Liquidity Shocks and Firm Exports: Evidence from Cash Shortages during India‘s Demonetization
NBER
2024.11.12
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 and unexpected policy announcement by the government that large-denomination currency notes―comprising 86% of the country’s currency in circulation―would cease to be legal tender 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. We develop direct measures of exporting firms’ exposure to cash shortages and indirect measures that act through domestic supply chain networks. 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. These findings underscore the critical role of domestic supply chains in transmitting liquidity shocks to exports.