Bank Development and Unemployment in Kenya: An Empirical Investigation

Abstract

This study has empirically investigated the impact of bank development
on unemployment in Kenya, based on time-series data spanning from
1991 to 2019. Using the ARDL bounds testing approach, the results of the
study have revealed that in Kenya, the impact of bank development on unemployment,
though time-invariant, depends largely on the proxy used
to measure the level of bank development. Consistent with expectations,
bank development – as proxied by liquid liabilities, bank deposits, deposit
money bank assets and the banking development index – has been found
to have a negative impact on unemployment in Kenya. However, when
bank development is proxied by the domestic credit to private sector by
banks, its impact on unemployment was found to be statistically insignificant.
These results were found to apply consistently in the long run and in
the short run.