Contractual Savings or Stock Market Development Which Leads?

Abstract

Catalan, Impavido, and Musalem study the relationship Africa, and Thailand. They do not present a theoretical between the development of contractual savings (assets framework but do explain how the growth of the of pension funds and life insurance companies) and non-contractual savings sector is thought to promote financial life insurance and the development of stock markets development. (market capitalization and value traded). TheirThe authors find evidence in the data that causality contribution lies in providing time-series evidence on a between institutions and markets either does not exist or, hypothesis that is very popular-but had not been if it exists, runs predominantly from institutions to substantiated-among supporters of fully funded pension markets. To a lesser extent, there is simultaneous systems in which funds invest large shares of their causality between institutions and markets. Furthermore, portfolios in tradable securities (equities, bonds).there is limited evidence that causality runs only from The literature is not clear on its assumption regarding markets to institutions (the only exception seems to be causality between contractual savings and capital market for non-life insurance in developing countries). development. A one-way or two-way relationship isResults seem to support the idea that the development assumed, usually interchangeably; the authors address of institutional investors is likely to promote the growth the question of which leads empirically. They present of market capitalization more than that of value traded. the evidence, including descriptive statistics and the In developing countries, there seems to be no causality results of Granger causality tests, for OECD countries from pension funds to growth in value traded, while and such countries as Chile, Malaysia, Singapore, South there is causality from life and non-life insurance.This paper-a product of the Financial Sector Development Department-is part of a larger effort in the department to study the effects of contractual savings on financial markets. Copies of the paper are available free from the World Bank,

Insurance-Growth Nexus: Aggregation and Disaggregation

“…Many contemporary scholars have highlighted the importance of financial institutions in developing the economic growth of a country (Catalan, Impavido, & Musalem, 2000;Levine, 1992;Nguyen, 2020). Saunders and Cornett (2008) argued that financial institutions could be categorized as commercial banks, investment banks, savings banks, or as insurance companies.…”

“…The financial system normally performs the following functions; hedging; pooling of risk; efficient allocation of scarce resources; mobilizing savings; trade and commerce; loss mitigation; and better pricing of risk (Levine, 1997;Skipper, 2006;Kugler & Ofoghi, 2005). In addition to this, insurance companies promote trade, commerce, and investment across countries (Catalan, Impavido, & Musalem, 2000;Chang, Lee, & Chang, 2013;Ward & Zurbruegg, 2000). Levine (1997) highlighted that strong financial systems will positively stimulate the rate of economic growth, which may otherwise be impossible.…”

“…Only a few studies explored the role of insurance on economic growth. These studies highlighted insurance, as a risk transferor, indemnification of losses, and financial intermediation, promotes economic growth (Levine, 1997;Catalan, Impavido, & Musalem, 2000;Ward & Zurbruegg, 2000;Kugler & Ofoghi, 2005;Skipper, 2006;Chang, Lee, & Chang, 2013;Din, Mughal, & Farooq, 2013). Many authors used the aggregate insurance premiums to measure the insurance activity in an economy, while only Kugler and Ofoghi, (2005); Curak and Loncar (2008) used the life and non-life insurance separately to study their individual effects on economic growth and found inconsistent results.…”

Developing a competitive intelligence strategy model for South African life assurance industry

“…These results concurred with Chang et al (2014b), Focarelli (2017), Kjosevski (2012), and Lee et al (2016b). Net written premiums and penetration varied little with fiscal expansion when proxied by the insurance industry (Impavido, Musalem & Catalan, 2000;Tong, 2008;Umoren & Joseph, 2016;Ward & Zurbruegg, 2000). These results corroborated the studies of Alhassan and Fiador (2014), Webb, Grace and Skipper (2017).…”

“…Meanwhile, the development of the insurance sector facilitates investments and savings used for capital formation to induce economic growth (Alhassan & Fiador, 2014;Haiss & Sümegi, 2008;Lee et al, 2013b;Ward & Zurbruegg, 2000;Webb et al, 2017). Impavido et al (2000), Pan and Su (2012), and Ward and Zurbruegg (2000), however, opined that insurance sector development is an outcome of economic growth, thus suggesting that the demand for insurance products is dependent on economic growth. Moreover, Pan and Su (2012) contend that the development of the insurance sector and economic growth are not dependent on each other.…”