Bank Development and Unemployment in Kenya: An Empirical Investigation

Abstract

This study has empirically investigated the impact of bank developmenton unemployment in Kenya, based on time-series data spanning from1991 to 2019. Using the ARDL bounds testing approach, the results of thestudy have revealed that in Kenya, the impact of bank development on unemployment,though time-invariant, depends largely on the proxy usedto measure the level of bank development. Consistent with expectations,bank development – as proxied by liquid liabilities, bank deposits, depositmoney bank assets and the banking development index – has been foundto have a negative impact on unemployment in Kenya. However, whenbank development is proxied by the domestic credit to private sector bybanks, its impact on unemployment was found to be statistically insignificant.These results were found to apply consistently in the long run and inthe short run.