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

Author

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  • Emran, M.Shahe
  • Mookherjee, Dilip
  • Shilpi, Forhad
  • Uddin, M. Helal

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.

Suggested Citation

  • Emran, M.Shahe & Mookherjee, Dilip & Shilpi, Forhad & Uddin, M. Helal, 2017. "Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh," MPRA Paper 79844, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:79844
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    Cited by:

    1. Rocco Macchiavello & Ameet Morjaria, 2021. "Competition and Relational Contracts in the Rwanda Coffee Chain," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(2), pages 1089-1143.
    2. Bensch, Gunther & Kaestner, Kathrin & Vance, Colin, 2023. "Pass-through of cocoa prices along the supply chain: What's left for farmers in Côte D'Ivoire?," Ruhr Economic Papers 1035, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    3. Abdullah Al Mahmud & Muhammad Shahin Miah & Mohammad Rakib Uddin Bhuiyan, 2022. "Does Trade Credit Financing Affect Firm Performance? Evidence from an Emerging Market," IJFS, MDPI, vol. 10(4), pages 1-19, September.

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    More about this item

    Keywords

    Intermediary; Supply Chain; Market Power; Credit Rationing; Pass-through; Edible Oils; Bangladesh;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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