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Financial Development, Unemployment Volatility, and Sectoral Dynamics

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  • Epstein, Brendan
  • Finkelstein Shapiro, Alan
Abstract
We document a negative and significant relationship between domestic financial de- velopment and unemployment volatility in developing and emerging economies (DEMEs). However, there is no significant relationship between these variables in advanced economies (AEs). A labor-search model with production heterogeneity, sectoral financial frictions, and interfirm input credit can rationalize these differential cross-country results. Un- employment volatility is decreasing in financial development, but the quantitative relevance of this relationship is increasing in the extent to which input credit is prevalent in an economy. This insight is consistent with the fact that, empirically, input credit is much more prominent in DEMEs compared to AEs.

Suggested Citation

  • Epstein, Brendan & Finkelstein Shapiro, Alan, 2018. "Financial Development, Unemployment Volatility, and Sectoral Dynamics," MPRA Paper 88693, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:88693
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    Cited by:

    1. Brendan Epstein & Alan Finkelstein Shapiro, 2021. "Increasing Domestic Financial Participation: Implications for Business Cycles and Labor Markets," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 39, pages 128-145, January.
    2. Henda Omri & Anis Omri & Abdessalem Abbassi, 2024. "Macro-level determinants of entrepreneurial behavior and motivation," International Entrepreneurship and Management Journal, Springer, vol. 20(4), pages 2629-2667, December.
    3. Epstein, Brendan & Finkelstein Shapiro, Alan, 2017. "Banking and Financial Participation Reforms, Labor Markets, and Financial Shocks," MPRA Paper 88697, University Library of Munich, Germany.
    4. Sheilla Nyasha & Nicholas M. Odhiambo & Mercy T. Musakwa, 2021. "The Impact of Stock Market Development on Unemployment: Empirical Evidence from South Africa," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(1-2), pages 92-110, January-J.
    5. S. Nyasha & N.M. Odhiambo & M.T. Musakwa, 2021. "The Impact of Stock Market Development on Unemployment: Empirical Evidence from South Africa," Working Papers AESRI-2021-17, African Economic and Social Research Institute (AESRI), revised Jul 2021.
    6. Epstein, Brendan & Finkelstein Shapiro, Alan & Gonzalez Gomez, Andres, 2018. "Global Financial Risk, Domestic Financial Access, and Unemployment Dynamics," MPRA Paper 88692, University Library of Munich, Germany.
    7. Finkelstein Shapiro, Alan & González Gómez, Andrés, 2017. "Credit market imperfections, labor markets, and leverage dynamics in emerging economies," Journal of International Money and Finance, Elsevier, vol. 78(C), pages 44-63.
    8. Tang, Chun & Liu, Xiaoxing & Zhou, Donghai, 2022. "Financial market resilience and financial development: A global perspective," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    9. Yılmaz Bayar & Murat Gündüz & Funda H. Sezgin, 2019. "Banking Sector Instability and Economic Growth: Evidence from Turkey," Alphanumeric Journal, Bahadir Fatih Yildirim, vol. 7(2), pages 263-274, December.
    10. Alan Finkelstein Shapiro & Brendan Epstein, 2018. "Banking and Financial Access Reforms, Labor Markets, and Financial Shocks," 2018 Meeting Papers 2, Society for Economic Dynamics.
    11. Ekkehard Ernst, 2019. "Finance and Jobs: How Financial Markets and Prudential Regulation Shape Unemployment Dynamics," JRFM, MDPI, vol. 12(1), pages 1-30, January.
    12. Finkelstein Shapiro, Alan, 2018. "Labor force participation, interest rate shocks, and unemployment dynamics in emerging economies," Journal of Development Economics, Elsevier, vol. 133(C), pages 346-374.
    13. Nguyen, Canh Phuc & Su, Thanh Dinh, 2021. "Easing economic vulnerability: Multidimensional evidence of financial development," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 237-252.

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    More about this item

    Keywords

    Business cycles; financial development; financial frictions; labor markets; large firms; search frictions; small firms;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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