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Racial Discrimination and Competition

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  • Ross Levine
  • Alexey Levkov
  • Yona Rubinstein

Abstract

This paper assesses the impact of competition on racial discrimination. The dismantling of inter- and intrastate bank restrictions by U.S. states from the mid-1970s to the mid-1990s reduced financial market imperfections, lowered entry barriers facing nonfinancial firms, and boosted the rate of new firm formation. We use bank deregulation to identify an exogenous intensification of competition in the nonfinancial sector, and evaluate its impact on the racial wage gap, which is that component of the black-white wage differential unexplained by Mincerian characteristics. We find that bank deregulation reduced the racial wage gap by spurring the entry of non- financial firms. Consistent with taste-based theories, competition reduced both the racial wage gap and racial segregation in the workplace, particularly in states with a comparatively high degree of racial prejudice, where competition-enhancing bank deregulation eliminated about one-quarter of the racial wage gap after five years.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14273.

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Date of creation: Aug 2008
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Handle: RePEc:nbr:nberwo:14273

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Citations

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Cited by:
  1. Beck, T.H.L. & Behr, P. & Madestam, A., 2012. "Sex and Credit: Is there a Gender Bias in Lending?," Discussion Paper 2012-062, Tilburg University, Center for Economic Research.
  2. William Kerr & Ramana Nanda, 2009. "Banking Deregulations, Financing Constraints, and Firm Entry Size," NBER Working Papers 15499, National Bureau of Economic Research, Inc.
  3. Demirguc-Kunt, Asli & Levine, Ross, 2008. "Finance and economic opportunity," Policy Research Working Paper Series 4468, The World Bank.
  4. Asli Demirg��-Kunt & Ross Levine, 2009. "Finance and Inequality: Theory and Evidence," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 287-318, November.
  5. Kpodar, Kangni & Singh, Raju Jan, 2011. "Does financial structure matter for poverty ? evidence from developing countries," Policy Research Working Paper Series 5915, The World Bank.
  6. Zimmerman, Seth D., 2011. "The Returns to Four-Year College for Academically Marginal Students," IZA Discussion Papers 6107, Institute for the Study of Labor (IZA).
  7. Aparicio Fenoll, Ainhoa, 2011. "The Effect of Product Market Competition on Job Instability," IZA Discussion Papers 5669, Institute for the Study of Labor (IZA).
  8. Francois, Patrick & van Ypersele, Tanguy, 2009. "Doux Commerces: Does Market Competition Cause Trust?," CEPR Discussion Papers 7368, C.E.P.R. Discussion Papers.
  9. Xuelong Wang, 2012. "Financial Development and Rural-Urban Inequality: Evidence from China," Economics Bulletin, AccessEcon, vol. 32(2), pages 1625-1639.
  10. William Kerr & Ramana Nanda, 2007. "Democratizing Entry: Banking Deregulations, Financing Constraints, and Entrepreneurship," Working Papers 07-33, Center for Economic Studies, U.S. Census Bureau.
  11. Alexey Levkov, 2010. "Branching of banks and union decline," Risk and Policy Analysis Unit Working Paper QAU10-7, Federal Reserve Bank of Boston.
  12. Chatterji, Aaron K. & Seamans, Robert C., 2012. "Entrepreneurial finance, credit cards, and race," Journal of Financial Economics, Elsevier, vol. 106(1), pages 182-195.

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