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

54 Pages Posted: 14 Jan 2020

See all articles by Shahe Emran

Shahe Emran

Columbia University

Dilip Mookherjee

Boston University - Department of Economics

Forhad Shilpi

World Bank - Development Research Group (DECRG)

M. Helal Uddin

University of Dhaka

Multiple version iconThere are 2 versions of this paper

Date Written: January 2020

Abstract

We extend standard models of price pass-through in an imperfectly competitive supply chain to incorporate rationing of trade credit. Credit rationing reverses predictions concerning effects of raw material import prices on pass-through to wholesale prices, and effects of regulations of intermediaries.

To test these we study the effects of a policy in Bangladesh's edible oils supply chain during 2011-12 banning a layer of financing intermediaries. Evidence from a difference-in-difference estimation rejects the standard model. We find 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: Bangladesh, Credit rationing, Edible Oils, intermediary, market power, Pass-Through, Supply Chain

JEL Classification: L13, O12, Q13

Suggested Citation

Emran, Shahe and Mookherjee, Dilip and Shilpi, Forhad and Uddin, M. Helal, Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh (January 2020). CEPR Discussion Paper No. DP14272. Available at SSRN: https://ssrn.com/abstract=3518613

Shahe Emran (Contact Author)

Columbia University ( email )

3022 Broadway
New York, NY 10027
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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