Does insurance promote economic growth: A comparative study of developed and emerging/developing economies

Figures & data

Table 1. Studies on insurance and economic growth

Author(s)	Scope	Statistical test	Focus and time	Result
Ward and Zurbruegg (2000)	Nine OECD countries	Granger causality test	Life/non-life Insurance 1961–1996	They concluded that impact of insurance industry varies on economic growth based on different economic levels
Webb et al. (2002)	55 Countries	Cross-section analysis	Life/non-life insurance 1980–1996	Banking and insurance sector has a positive effect on economic growth; the result is stronger than the effects obtained independently from each other
Hwang (2003)	China	Multiple regression models	Life insurance 1986–1996	Author concludes that economic reforms, social structure and higher education are the main factors for increased demand for life insurance in China
Kugler and Ofoghi (2005)	UK	Co-integration	Life and non-life at disaggregate 1971–1997	Authors found that insurance industry plays significant positive role in promoting economic growth and there exist bilateral relationship between economic growth and insurance
Boon (2005)	Singapore	Granger causality	Bank, stock markets and insurance 1987–2002	The author concluded that insurance coupled with stock market promotes economic growth. On the other hand, there is a demand (enterprise side) following pattern for banks and economic growth
Arena (2008)	55 countries	GMM on panel data	Life and non-life 1974–2004	Both the Life and non-life insurance significantly affects economic growth. However, life insurance affects economic growth in high-income countries while non-life insurance affects economic growth in both low-income and high-income countries as well
Tong (2008)	US, Sweden, Germany and South Korea	OLS, fixed effect and simulation equation	Life and non-Life	The author concluded that non-life insurance has a significant and positive effect on economic growth for all countries while life insurance has a positive and significant effect on the economic growth of the US and South Korea while it is negative for Germany and Sweden
Vadlamannati (2008)	India	Co-integration and causality test	Aggregate	Insurance sector reforms positively affect economic growth and financial intermediation services are an important part of the insurance industry
Adams, Andersson, Andersson, and Lindmark (2009)	Sweden	Causality test	Aggregate 1830–1998	The author concluded that bank credit facility promotes economic growth and demand for insurance while insurance sector has a positive effect on economic growth only in the boom periods
Du (2009)	China	Pooled OLS, random effects GLS and fixed effect	Health insurance 1991–2000	They found that open door policy coupled with deregulation are the main factors for decreased demand of health insurance in China
Njegomir and Stojić (2010)	Ex-Yugoslavia region	Specific fixed effect	Aggregate 2004–2008	The authors concluded that insurance positively affects economic growth as a risk transfer, indemnification and as institutional investor
Ching et al. (2010)	Malaysia	VECM and granger causality	Life insurance1997–2008	They concluded that there exist significant relationship between life insurance and Economic Growth for Malaysia
Kjosevski (2011)	Macedonia	Multiple regression	Aggregate 1995–2000	The author found a positive and significant effect of aggregate and non-life insurance on economic growth while the relationship was negative for the life insurance
Horng et al. (2012)	Taiwan	Vector autoregressive	Aggregate 1961–2006	Insurance demand and financial development Granger cause economic growth
Omoke (2012)	Nigeria	Co-integration	Aggregate 1970–2008	The author concluded that no relationship exists between insurance and economic growth for Nigeria.
Guochen and Chiwei (2012)	China (cross-regional study)	Bootstrap panel Granger causality	Life and non-life insurance 2006–2011	They conclude that demand following pattern is observed in the high-income provinces while supply following pattern is present in many provinces
Verma and Bala (2013)	India	OLS	Life insurance 1990–2011	They concluded that life insurance significantly affects the economic growth of India
Adams, Andersson, Hardwick, and Lindmark (2013)	Sweden	GMM	Life Insurance 1855–1947	Authors indicate that smaller firms outer perform than the larger firms in term of growth
Din, Mughal, and Farooq (2013)	Pakistan	ARDL/VECM/Granger Causality	Non-life and marine insurance 1982–2009	They found that marine insurance significantly affects international trade but the relationship is negative. While non-life insurance positively affects economic growth
Chau et al. (2013)	Malaysia	VECM Granger Causality	Life and non-Life insurance 1970–2012	They found that Life insurance in the short run has significant positive effect on economic growth while non-life insurance has positive effect in the long run
Ghosh (2013)	India	VECM	Life insurance	The author found that there exist long-term positive relationship between life insurance industry and economic growth. Furthermore, life insurance Granger causes the economic growth only
Kamiya (2013)	China	Report	Non-Life	The author identifies that unrestricted urbanisation coupled with the strong financial system are vital factors for the demand of non-life insurance. On the other hand, poor claim management, higher insurance cost and a lower variety of insurance product line are responsible for poor performance of insurance industry in China
Cristea et al. (2014)	Romania	Correlation	Life and non-life insurance 1997–2012	They concluded that life insurance, in the case of Romania, is more significantly affecting the GDP per capita than the non-life insurance
Akinlo and Apanisile (2014)	sub-Saharan Africa	Pooled OLS, GMM and Fixed Effect	Aggregate 1986–2011	They found that there exists a significant positive relationship between the insurance industry and economic growth for sub-Saharan Africa
Madukwe and Anyanwaokoro (2014)	Nigeria	Pearson’s product movement Correlation coefficient	Life insurance 2000–2011	Author found there is positive and significant causal relationship between insurance and economic growth for Nigeria
Ghimire (2014)	Nepal	Conceptual	Aggregate	Based on the literature, author argued that insurance is promoting economic growth in Nepal via trade, investment and entrepreneurial activities
Alhassan (2016)	Sub African	ARDL and Causality	1990–2010	The author found a bi-directional relationship between insurance and economic growth. In addition, results of ARDL model revealed that life insurance has more significant and long-term effect on economic growth as compared to non-life insurance
Din et al. (2017)	USA, UK, China, India, Malaysia and Pakistan	PMG/ARDL	1980–2015	Authors found a significant relationship between aggregate insurance and economic growth for all countries. Similarly, results highlight a positive and significant relationship between non-life insurance and economic growth for all countries. However, a significant but a negative relationship was found between insurance and economic growth for USA, Malaysia and China
Hou and Cheng (2017)	31 countries	GMM and pooled mean group (PMG)	198–2008	The author found that banking sector has a significant relationship with economic growth while insurance and stock market were not much significant for many countries. In addition, authors also found that different financial institutions play a vital role in economic growth for countries based on income level and financial development of countries

Table 2. Econometric methodology

Variable	Proxy	Operational definition	Data source
Insurance Activity	Net Insurance Premiums	Total Net insurance premiums paid by all the policyholders during a given year	Sigma Re/Statistical bureau/Insurance association reports/Association of British insurers
	Penetration	Total Net insurance premiums paid by all the policyholders during a given year as a percentage of GDP
	Density	Ratio of total insurance premiums in a given year to total population
Economic growth	GDP in percentage	Change in total output produced in an economy	World Development Indicators (WDI)/International monetary fund/Global economy
Trade openness	Trade openness as percentage of GDP	A ratio of imports plus exports to GDP	WDI/International monetary fund/Global economy
Investment	Foreign direct investment in percentage	A ratio of FDI to GDP	WDI/International monetary finance/Global economy
Stock market	Stock market development in percentage	A ratio of stock market capitalisation to GDP	KSE/NSE/SSE/KLSE/LSE/NYSE and WDI
Banking sector	Banking sector	A ratio of domestic bank credit to GDP	Respective state/Central bank’s statistical reports, and WDI/International monetary fund/Global economy
	Development
	In percentage
Labour force	Employment level	Number of persons unemployed in an economy	Respective state/Central bank’s statistical reports, and world bank’s statistics

Source: Din et al. (2017).

Table 3. Fixed/random effect model

Variables	Developed			Emerging/developing
	Net written premiums	Penetration	Density	Net written premiums	Penetration	Density
Life insurance	0.70*	0.28	0.10*	−0.19	0.41**	0.00
Non-life insurance	−0.02	−0.01	0.05**	0.43**	0.13*	0.01*
Trade openness	0.124*	0.08*	0.09*	0.04	0.03	0.05*
Banking development	−0.04*	−0.04*	−0.04*	−0.13*	−0.11	−0.04*
Stock market development	0.35*	0.021*	0.02*	0.04*	0.03*	−0.01*
Investment	−0.22	0.05**	0.05**	0.66*	0.54*	0.02*
Employment	0.17*	−0.22	−0.23	0.83*	0.98*	0.02*
R^2	0.65	0.64	0.67	0.56	0.59	0.77
F-Statistics	2.84	2.53	2.70	6.65	6.67	1.72
Prob	0.00	0.00	0.00	0.00	0.00	0.00
Hausman test
χ^2	13.52*	14.67*	12.78*	10.70*	29.94*	17.10*

* Represents significance at 5%, respectively.

** Represents significance at 10%, respectively.

Table

List of countries
Developed	Transitional/emerging
USA	Brazil
UK	Russia
Japan	India
Canada	China
France	South Korea
Germany	Saudi Arab
Italy	Turkey
Australia	Indonesia
Spain	Malaysia
Netherlands	Pakistan

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