Microinsurance and Economic Growth in Africa

Abstract

The reach and scope of microinsurance have expanded considerably over the last couple of decades. The literature on microinsurance focuses predominantly on its microeconomic impact. In contrast, I examine the contemporaneous and intertemporal effect of microinsurance on economic development using rich census data of microinsurance coverage in African economies. Estimates suggest that microinsurance affects economic growth both on impact and over time, with the magnitude of the intertemporal effect exceeding that of the contemporaneous effect. Evidence also suggests nonlinearities in the microinsurance–growth nexus. The marginal effect of microinsurance is a negative function of the starting level of development. For low-income countries, microinsurance has a robust positive effect on economic growth, both in terms of impact and over time. However, microinsurance may fail to leave a lasting trace on the aggregate economy in “richer” developing countries.