Banking System Concentration and Unemployment in Developing Countries

This paper studies the effect of banking system concentration on unemployment in developing countries. Using data on 42 developing countries, it finds that more concentration increased unemployment over the period 1987-2007. The magnitude of the effect is substantial. The result is robust to both endogeneity of the bank concentration variable and numerous variations in specification. It is important because many developing countries are characterized by high levels of both banking system concentration and unemployment.