Discussion Paper Details

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

Author(s): Shahe Emran, Dilip Mookherjee, Forhad Shilpi and Helal Uddin

Publication Date: January 2020

Keyword(s): Bangladesh, Credit rationing, Edible Oils, intermediary, market power, Pass-Through and Supply Chain

Programme Area(s): Development Economics, Industrial Organization and International Macroeconomics and Finance

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.

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Bibliographic Reference

Emran, S, Mookherjee, D, Shilpi, F and Uddin, H. 2020. 'Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh'. London, Centre for Economic Policy Research.