Local banking market structure and employment dynamics: evidence from US counties

Amit Ghosh () and Salvador Contreras ()
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Amit Ghosh: Texas A&M International University
Salvador Contreras: The University of Texas Rio Grande Valley

Annals of Finance, 2025, vol. 21, issue 2, No 3, 163-188

Abstract: Abstract Does the local banking market structure affect the local labor market? The answer to this question has important social-economic implications. Using a panel dataset covering over 2700 counties from 1994 to 2020 we find that concentrated banking markets are associated with lower county-level unemployment rates. Exploring transmission mechanisms, we find that concentration increases different categories of bank lending, including small business loans. Higher concentration also leads to small business formation and job creation. Our findings lend support to the relative efficient structure paradigm suggesting concentration in local banking markets results in more efficient banks gaining market shares, increasing their local comparative advantage, in turn improving access to credit and leading to stronger local labor market.

Keywords: Deposit market share; Herfindahl–Hirschman Index; Relative efficient structure; Unemployment rates; Panel data; Bank lending; New business formation (search for similar items in EconPapers)
JEL-codes: E2 G21 R11 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1007/s10436-025-00461-0

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