IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/79844.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/79844/1/MPRA_paper_79844.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    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," Review of Economic Studies, Oxford University Press, vol. 77(3), pages 1192-1230.
    3. Nakamura, Emi & Zerom, Dawit, 2008. "Accounting for Incomplete Pass-Through," MPRA Paper 14389, University Library of Munich, Germany.
    4. 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.
    5. 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.
    6. 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.
    7. Casaburi, Lorenzo & Reed, Tristan, 2017. "Competition in Agricultural Markets: An Experimental Approach," CEPR Discussion Papers 11985, C.E.P.R. Discussion Papers.
    8. 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.
    9. 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.
    10. 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.
    11. 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.
    12. 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.
    13. 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.
    14. 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.
    15. Atkin, David & Donaldson, Dave, 2015. "Who’s Getting Globalized? The Size and Implications of Intra-national Trade Costs," CEPR Discussion Papers 10759, C.E.P.R. Discussion Papers.
    16. 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.
    17. 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.
    18. Nicolas Berman & Philippe Martin & Thierry Mayer, 2012. "How do Different Exporters React to Exchange Rate Changes?," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 437-492.
    19. 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)

    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. YOSHIDA Yushi & SASAKI Yuri, 2015. "Automobile Exports: Export price and retail price," Discussion papers 15024, Research Institute of Economy, Trade and Industry (RIETI).
    3. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2014. "Importers, Exporters, and Exchange Rate Disconnect," American Economic Review, American Economic Association, vol. 104(7), pages 1942-1978, July.
    4. David S. Scharfstein & Adi Sunderam, 2013. "Concentration in Mortgage Lending, Refinancing Activity and Mortgage Rates," NBER Working Papers 19156, National Bureau of Economic Research, Inc.
    5. Dagoumas, Athanasios S. & Polemis, Michael L., 2020. "Carbon pass-through in the electricity sector: An econometric analysis," Energy Economics, Elsevier, vol. 86(C).
    6. Gaudin, Germain, 2016. "Pass-through, vertical contracts, and bargains," Economics Letters, Elsevier, vol. 139(C), pages 1-4.
    7. Rachel Griffith & Lars Nesheim & Martin O'Connell, 2018. "Income effects and the welfare consequences of tax in differentiated product oligopoly," Quantitative Economics, Econometric Society, vol. 9(1), pages 305-341, March.
    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. Vardges Hovhannisyan, 2018. "A structural model of cost pass-through: the case of the US yogurt retailing," Empirical Economics, Springer, vol. 55(2), pages 805-830, September.
    10. José Antonio Rodríguez-López, 2011. "Prices and Exchange Rates: A Theory of Disconnect," Review of Economic Studies, Oxford University Press, vol. 78(3), pages 1135-1177.
    11. Mary Amiti & Oleg Itskhoki & Jozef Konings, 2016. "International Shocks and Domestic Prices: How Large Are Strategic Complementarities?," NBER Working Papers 22119, National Bureau of Economic Research, Inc.
    12. Bonnet, Céline & Corre, Tifenn & Réquillart, Vincent, 2015. "Price Transmission in Food Chains: The Case of the Dairy Industry," TSE Working Papers 15-563, Toulouse School of Economics (TSE).
    13. Jan De Loecker & Pinelopi K. Goldberg & Amit K. Khandelwal & Nina Pavcnik, 2016. "Prices, Markups, and Trade Reform," Econometrica, Econometric Society, vol. 84, pages 445-510, March.
    14. Linn, Joshua & Muehlenbachs, Lucija, 2018. "The heterogeneous impacts of low natural gas prices on consumers and the environment," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 1-28.
    15. 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.
    16. Baxter, Marianne & Landry, Anthony, 2017. "IKEA: Product, pricing, and pass-through," Research in Economics, Elsevier, vol. 71(3), pages 507-520.
    17. Raphael A. Auer, 2015. "Exchange Rate Pass‐Through, Domestic Competition, and Inflation: Evidence from the 2005–08 Revaluation of the Renminbi," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(8), pages 1617-1650, December.
    18. Durevall, Dick, 2017. "Cost Pass-Through in the Swedish Coffee Market," HUI Working Papers 120, HUI Research.
    19. Waldyr Areosa & Marta Areosa, 2012. "The Signaling Effect of Exchange Rates: pass-through under dispersed information," Working Papers Series 282, Central Bank of Brazil, Research Department.
    20. Auer, Raphael A. & Schoenle, Raphael S., 2016. "Market structure and exchange rate pass-through," Journal of International Economics, Elsevier, vol. 98(C), pages 60-77.

    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

    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:pra:mprapa:79844. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.