Abstract:
This paper examines the impact of an extreme monetary shock, India’s
demonetization event in 2016, on domestic agricultural trade. Using data on
arrivals and prices from around 3000 regulated markets for 35 major crops, we
find that demonetization reduced trade value by 13% in the short run, settling
at 10% eight months after demonetization – driven more by a decline in prices
than of arrivals. Triple difference estimates suggest that the impacts are
sharpest for kharif /monsoon crops, perishables and crops where government
intervention is minimal or absent; markets in areas with limited bank and
market access fared worse. Our results suggest that demonetization left a
lasting implosion of agricultural trade domestically.
