Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh

41 Pages Posted: 23 Jun 2017

See all articles by M. Shahe Emran

M. Shahe Emran

George Washington University - Department of Economics

Dilip Mookherjee

Boston University - Department of Economics

Forhad Shilpi

World Bank - Development Research Group (DECRG)

M. Helal Uddin

University of Dhaka

Date Written: June 20, 2017

Abstract

We extend standard models of price pass-through across multiple layers of intermediaries in a supply chain with imperfect competition to incorporate credit rationing. To test against a standard model without credit rationing, we study the effects of a policy reform in Bangladesh’s edible oils supply chain during 2011-12 which banned a layer of financing intermediaries. The standard model predicts higher pass-through of international prices to wholesale prices after the reform, while the credit rationing model predicts the opposite if the resulting credit contraction is strong enough. Evidence from a difference-in-difference estimation rejects the standard model. Our estimates imply that the regulatory effort to reduce market power of financing intermediaries ended up raising consumer prices by restricting access to credit of downstream traders.

Keywords: Intermediary, Supply Chain, Market Power, Credit Rationing, Pass-Through, Edible Oils, Bangladesh

JEL Classification: O12, L13, Q13

Suggested Citation

Emran, M. Shahe and Mookherjee, Dilip and Shilpi, Forhad and Uddin, M. Helal, Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh (June 20, 2017). Available at SSRN: https://ssrn.com/abstract=2991209 or http://dx.doi.org/10.2139/ssrn.2991209

M. Shahe Emran (Contact Author)

George Washington University - Department of Economics ( email )

2115 G Street NW
302 Monroe Hall
Washington, DC 20052
United States

Dilip Mookherjee

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-4392 (Phone)
617-353-4143 (Fax)

Forhad Shilpi

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN3-311
Washington, DC 20433
United States
202-458-7476 (Phone)
202-522-1151 (Fax)

M. Helal Uddin

University of Dhaka ( email )

University of Dhaka
Ramna, Dhaka, 1000
Bangladesh

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