IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/14272.html
   My bibliography  Save this paper

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

Author

Listed:
  • Mookherjee, Dilip
  • Emran, Shahe
  • Shilpi, Forhad
  • Uddin, Helal

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

  • Mookherjee, Dilip & Emran, Shahe & Shilpi, Forhad & Uddin, Helal, 2020. "Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh," CEPR Discussion Papers 14272, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:14272
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP14272
    Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Celine Bonnet & Pierre Dubois & Sofia B. Villas Boas & Daniel Klapper, 2013. "Empirical Evidence on the Role of Nonlinear Wholesale Pricing and Vertical Restraints on Cost Pass-Through," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 500-515, May.
    2. Emi Nakamura & Dawit Zerom, 2010. "Accounting for Incomplete Pass-Through," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(3), pages 1192-1230.
    3. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(1), pages 437-492.
    4. John Rust & George Hall, 2003. "Middlemen versus Market Makers: A Theory of Competitive Exchange," Journal of Political Economy, University of Chicago Press, vol. 111(2), pages 353-403, April.
    5. Céline Bonnet & Pierre Dubois & Sofia B. Villas Boas & Daniel Klapper, 2013. "Empirical evidence on the role nonlinear wholesale pricing and vertical restraints on cost pass-trough," Post-Print hal-02643672, HAL.
    6. Burstein, Ariel & Gopinath, Gita, 2014. "International Prices and Exchange Rates," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 391-451, Elsevier.
    7. Kojima, Yasutomo & Parcell, Joseph L. & Cain, Jewelwayne S., 2014. "A Demand Model of the Wholesale Vegetable Oils Market in the U.S.A," 2014 Annual Meeting, February 1-4, 2014, Dallas, Texas 162472, Southern Agricultural Economics Association.
    8. Mike Burkart & Tore Ellingsen, 2004. "In-Kind Finance: A Theory of Trade Credit," American Economic Review, American Economic Association, vol. 94(3), pages 569-590, June.
    9. Talukder, R. K., 1990. "Food Consumption Parameters In Bangladesh Implications For Food Policy," Bangladesh Journal of Agricultural Economics, Bangladesh Agricultural University, vol. 13(1-2), pages 1-24, December.
    10. Casaburi, Lorenzo & Reed, Tristan, 2017. "Competition in Agricultural Markets: An Experimental Approach," CEPR Discussion Papers 11985, C.E.P.R. Discussion Papers.
    11. Pinelopi Koujianou Goldberg & Rebecca Hellerstein, 2008. "A Structural Approach to Explaining Incomplete Exchange-Rate Pass-Through and Pricing-to-Market," American Economic Review, American Economic Association, vol. 98(2), pages 423-429, May.
    12. Sandip Mitra & Dilip Mookherjee & Maximo Torero & Sujata Visaria, 2018. "Asymmetric Information and Middleman Margins: An Experiment with Indian Potato Farmers," The Review of Economics and Statistics, MIT Press, vol. 100(1), pages 1-13, March.
    13. E. Glen Weyl & Michal Fabinger, 2013. "Pass-Through as an Economic Tool: Principles of Incidence under Imperfect Competition," Journal of Political Economy, University of Chicago Press, vol. 121(3), pages 528-583.
    14. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
    15. Marcel Fafchamps & Ruth Vargas Hill, 2008. "Price Transmission and Trader Entry in Domestic Commodity Markets," Economic Development and Cultural Change, University of Chicago Press, vol. 56(4), pages 729-766, July.
    16. Minten, Bart & Kyle, Steven, 1999. "The effect of distance and road quality on food collection, marketing margins, and traders' wages: evidence from the former Zaire," Journal of Development Economics, Elsevier, vol. 60(2), pages 467-495, December.
    17. Braverman, Avishay & Stiglitz, Joseph E, 1982. "Sharecropping and the Interlinking of Agrarian Markets," American Economic Review, American Economic Association, vol. 72(4), pages 695-715, September.
    18. Nancy Chau & Hideaki Goto & Ravi Kanbur, 2016. "Middlemen, fair traders, and poverty," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 14(1), pages 81-108, March.
    19. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
    20. Donaldson, Dave & Atkin, David, 2015. "Who?s Getting Globalized? The Size and Implications of Intra-national Trade Costs," CEPR Discussion Papers 10759, C.E.P.R. Discussion Papers.
    21. Harris, Richard D. F. & Tzavalis, Elias, 1999. "Inference for unit roots in dynamic panels where the time dimension is fixed," Journal of Econometrics, Elsevier, vol. 91(2), pages 201-226, August.
    22. Ivanic, Maros & Martin, Will & Zaman, Hassan, 2012. "Estimating the Short-Run Poverty Impacts of the 2010–11 Surge in Food Prices," World Development, Elsevier, vol. 40(11), pages 2302-2317.
    23. Emi Nakamura, 2008. "Pass-Through in Retail and Wholesale," American Economic Review, American Economic Association, vol. 98(2), pages 430-437, May.
    24. David M. Kreps & Jose A. Scheinkman, 1983. "Quantity Precommitment and Bertrand Competition Yield Cournot Outcomes," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 326-337, Autumn.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. 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.
    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.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. M. Shahe Emran & Dilip Mookherjee & Forhad Shilpi & M. Helal Uddin, "undated". "Do Consumers Benefit from Supply Chain Intermediaries? Evidence from a Policy Experiment in Edible Oils Market in Bangladesh," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-273, Boston University - Department of Economics.
    2. Dagoumas, Athanasios & Polemis, Michael, 2018. "Analysing Carbon Pass-Through Rate Mechanism in the Electricity Sector: Evidence from Greece," MPRA Paper 91067, University Library of Munich, Germany.
    3. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," HUI Working Papers 120, HUI Research.
    4. Adachi, Takanori & Ebina, Takeshi, 2014. "Double marginalization and cost pass-through: Weyl–Fabinger and Cowan meet Spengler and Bresnahan–Reiss," Economics Letters, Elsevier, vol. 122(2), pages 170-175.
    5. Sebastian Heise, 2016. "Firm-to-Firm Relationships and Price Rigidity - Theory and Evidence," CESifo Working Paper Series 6226, CESifo.
    6. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," Working Papers in Economics 697, University of Gothenburg, Department of Economics.
    7. Dagoumas, Athanasios S. & Polemis, Michael L., 2020. "Carbon pass-through in the electricity sector: An econometric analysis," Energy Economics, Elsevier, vol. 86(C).
    8. Ha, Jongrim & Marc Stocker, M. & Yilmazkuday, Hakan, 2020. "Inflation and exchange rate pass-through," Journal of International Money and Finance, Elsevier, vol. 105(C).
    9. Baxter, Marianne & Landry, Anthony, 2017. "IKEA: Product, pricing, and pass-through," Research in Economics, Elsevier, vol. 71(3), pages 507-520.
    10. Bolatto, Stefano & Grazzi, Marco & Tomasi, Chiara, 2022. "Export modes and firms’ adjustments to exchange rate movements," European Economic Review, Elsevier, vol. 141(C).
    11. Nagengast, Arne J. & Bursian, Dirk & Menz, Jan-Oliver, 2021. "Dynamic pricing and exchange rate pass-through: Evidence from transaction-level data," European Economic Review, Elsevier, vol. 133(C).
    12. Fracasso, Andrea & Secchi, Angelo & Tomasi, Chiara, 2022. "Export pricing and exchange rate expectations under uncertainty," Journal of Comparative Economics, Elsevier, vol. 50(1), pages 135-152.
    13. Cédric Duprez & Glenn Magerman, 2019. "Price Updating with Production Networks," Working Papers ECARES 2019-07, ULB -- Universite Libre de Bruxelles.
    14. Eugenia Go, 2020. "Trade implications of transport cost in the Philippines," Economics PhD Theses 0320, Department of Economics, University of Sussex Business School.
    15. Cedric Duprez & Glenn Magerman, 2018. "Price Updating in Production Networks," Working Paper Research 352, National Bank of Belgium.
    16. Natalia Fabra & Mar Reguant, 2014. "Pass-Through of Emissions Costs in Electricity Markets," American Economic Review, American Economic Association, vol. 104(9), pages 2872-2899, September.
    17. Mirko Abbritti & Tommaso Trani, 2014. "Search and Bargaining in the Product Market and Price Rigidities," Faculty Working Papers 09/14, School of Economics and Business Administration, University of Navarra.
    18. Melo, Carolina & Moita, Rodrigo & Sunao, Stefanie, 2021. "Passing through the supply chain: Implications for market power," International Journal of Industrial Organization, Elsevier, vol. 79(C).
    19. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.
    20. Irz, Xavier & Mazzocchi, Mario & Réquillart, Vincent & Soler, Louis-Georges, 2015. "Research in Food Economics: past trends and new challenges," Revue d'Etudes en Agriculture et Environnement, Editions NecPlus, vol. 96(01), pages 187-237, March.

    More about this item

    Keywords

    Intermediary; Supply chain; market power; Credit rationing; Pass-through; Edible oils; Bangladesh;
    All these keywords.

    JEL classification:

    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:14272. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://www.cepr.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.