Bank competition and unemployment

Much effort has been devoted to exploring the effect of bank competition on economic growth and stability. This paper shifts the focus towards the unemployment outcome. Using the Boone and Lerner indicators as well as bank concentration ratios, it finds, in a panel of developing and developed countries, that unemployment declines with bank competition up to a certain level of bank competition, above which it rises with bank competition. The impact seems to operate through investment and self-employment. The data thus suggest that there exists an optimal bank competition level that minimizes unemployment and too less and too much competition in a banking sector is detrimental to unemployment as it impedes capital accumulation and entrepreneurship development.