Credit rationing and pass-through in supply chains: theory and evidence from Bangladesh
Files
First author draft
Date
2021
Authors
Emran, M. Shahe
Mookherjee, Dilip
Shilpi, Forhad
Uddin, M. Helal
Version
First author draft
OA Version
Citation
S. Emran, D. Mookherjee, F. Shilpi, M.H. Uddin. 2021. "Credit Rationing and Pass-Through in Supply Chains: Theory and Evidence from Bangladesh." American Economic Journal: Applied Economics, Vol 13, No. 3, July 2021, pp. 202-236. https://doi.org/10.1257/app.20190083
Abstract
Traders are often blamed for high prices, prompting government regulation. We study the effects of a government ban of a layer of financing intermediaries in edible oil supply chain in Bangladesh during 2011-12. Contrary to the predictions of a standard model of an oligopolistic supply chain, the ban caused downstream wholesale and retail prices to rise, and pass-through of the changes in imported crude oil price to fall. These results can be explained by an extension of the standard model to incorporate trade credit frictions, where intermediaries expand credit access of downstream traders.