Can Insurance Activity Act as a Stimulus of Economic Growth? Evidence from Time-Varying Causality in China

ABSTRACT

This article investigates the nexus between insurance and economic growth in China with a dynamic interactive mechanism to study different time periods. Using quarterly data from 1999 to 2015, the rolling-window causality test provides evidence of bidirectional causality between insurance activity and economic growth. However, the “supply-leading” pattern tends to dominate the “demand-following” pattern, which implies that in China insurance acts as a stimulus of economic growth during most of the period. Property insurance is more effective than life insurance in stimulating economic growth. Some temporary negative impacts from the development of the insurance sector show that China is in the midst of a transition from a closed economy to a more open economy and policy interventions by the government to liberalize the insurance sector. These findings offer several useful insights for policy makers in transition economies and developing countries.

KEY WORDS:

• demand-following
• economic growth
• insurance
• rolling-window causality
• supply-leading

Notes

^1. Proceedings of the United Nations Conference on Trade and Development (1964), Final Act and Report, p. 55, annex A.IV.23.

^2. According to a survey by Dash et al. (2018), no more than 20 studies have looked at the causality link between insurance and economic growth.

^3. Specifically, the critical values and p-values are obtained using asymptotic distribution constructed by means of Monte Carlo simulations using 2,000 samples generated from a VAR model with constant parameters.

^4. See Balcilar, Gupta, and Miller (2014) for technical details of the bootstrap test.

^5. In China, nonlife insurance comprises three lines of business: property insurance (includes liability insurance), health insurance, and personal liability insurance. Property insurance makes up more than 80% of total nonlife insurance premium income.

Additional information

Funding

This work was supported by Humanity and Social Science Fund of the Ministry of Education  [grant number 17YJA790035].