Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh
41 Pages Posted: 23 Jun 2017
Date Written: June 20, 2017
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: Suggested Citation