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

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

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

  • M. Shahe Emran & Dilip Mookherjee & Forhad Shilpi & M. Helal Uddin, 2020. "Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh," NBER Working Papers 26615, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:26615
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    JEL classification:

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

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