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

52 Pages Posted: 6 Jan 2020 Last revised: 23 Mar 2023

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

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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.

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). NBER Working Paper No. w26615, Available at SSRN: https://ssrn.com/abstract=3514353

Shahe Emran (Contact Author)

Columbia University ( email )

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Dilip Mookherjee

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
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Forhad Shilpi

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

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202-522-1151 (Fax)

M. Helal Uddin

University of Dhaka ( email )

University of Dhaka
Dhaka 1000
Ramna, Dhaka, Dhaka 1000
Bangladesh

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