Does insurance activity promote economic growth? Further evidence based on bootstrap panel Granger causality test

Abstract

This study applies the bootstrap panel Granger causality test to test whether insurance activity promotes economic growth, using data from 10 OECD countries over the period of 1979-2006. Empirical results indicate that one-way Granger causality running from all insurance activities to economic growth for France, Japan, Netherlands, Switzerland, and the UK, and economic growth Granger causes insurance activities in Canada (for life insurance), Italy (for total and life insurance) and the USA (for total and nonlife insurance). There is a two-way Granger causality between life insurance activity and economic growth in the USA, while no causality between insurance activities and economic growth is found in Belgium (for all insurance), Canada (for total and non-life insurance), Italy (for non-life insurance) and Sweden (for life insurance). Our results also confirm the finding of Ward and Zurbruegg [Does insurance promote economic growth? Evidence from OECD economies. Journal of Risk and Insurance 67, showing that the insurance-growth nexus varies across countries, since their paper have previously demonstrated heterogeneity in this vein. In an analysis of a broader, though overlapping 17-country sample and taking into account banking activities, the results suggest the importance of including banking activities when investigating the insurance-growth relationship.

Insurance market density and economic growth in Eurozone countries: the granger causality approach

“…Here, the Granger causality runs from insurance market activities to economic growth. The studies supporting SLH are Alhassan and Biekpe (2016), Pradhan et al (2017Pradhan et al ( , 2015, Alhassan and Fiador (2014), Chang et al (2014), Lee et al (2013aLee et al ( , 2013b, Guochen and Wei (2012), Lee (2011), Adams et al (2009), Kugler and Ofoghi (2005), and Boon (2005).…”

“…Like other financial services, such as banking and stock market activities, insurance market activities play a key role in economic growth (see, inter alia, Chang et al 2014;Ghosh 2013;Garcia 2012;Webb et al 2005aWebb et al , 2005bAdams et al 2009;Li et al 2007;Webb et al 2005aWebb et al , 2005bOutreville 1996) Insurance market activities serve a number of valuable economic functions that are largely distinct from other types of financial intermediaries, such as banking and stock market activities. The insurance market activities-both as a provider of risk transfer and indemnification and as an institutional investor-may contribute to economic growth in the following ways: promoting financial stability, facilitating trade and commerce, mobilizing domestic savings, allowing different risks to be managed more efficiently, encouraging the accumulation of new capital, fostering a more efficient allocation of domestic capital, and helping to reduce or mitigate losses (see, inter alia, Pradhan et al 2015aPradhan et al , 2015bLee et al 2013aLee et al , 2013bBillio et al 2012;Guochen and Wei 2012;Haiss and Sumegi 2008;Skipper and Kwon 2007;Kugler and Ofoghi 2005;Ward and Zurbruegg 2000).…”

“…The studies supporting DFH are Alhassan and Biekpe (2016), Pradhan et al (2015aPradhan et al ( , 2015b, Chang et al (2014), Ching et al (2010), Guochen and Wei (2012), Lee (2011), Kugler and Ofoghi (2005), Beck and Webb (2003), and Ward and Zurbruegg (2000).…”

“…Second, with the process of financial liberalization and integration, we have witnessed an increasingly rapid growth in the insurance market activity during last few years, which raises the question of 'whether insurance market activity promotes economic growth.' This adds to the empirical evidence on resolving the controversial issue between insurance market development and economic growth (see, inter alia, Boon, 2005;Chang et al, 2014). The relationship between insurance market activities 2 and economic growth has been broadly discussed in extant literature.…”

“…However, in extant literature, the link between insurance market activities and economic growth has not been fully recognized, and most empirical results vary according to data and econometric tools (see, inter alia, Lee et al 2013aLee et al , 2013bOutreville 2013). There is no universally held view of the nature of causality between insurance market activities and economic growth (see, inter alia, Pradhan et al 2017;Alhassan and Fiador 2014;Chang et al 2014;Kugler and Ofoghi 2005;Ward and Zurbruegg 2000). Therefore, we investigate the causal nexus between the two in order to ascertain the actual fact; that is, "How do insurance market activities cause economic growth?"…”