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Insurance-growth nexus in Africa

Author

Listed:
  • Mehmet Balcilar

    (Eastern Mediterranean University
    University of Pretoria
    Montpellier Business School)

  • Rangan Gupta

    (University of Pretoria)

  • Chien-Chiang Lee

    (Nanchang University)

  • Godwin Olasehinde-Williams

    (Eastern Mediterranean University)

Abstract

Economic growth may be influenced by insurance market activity through risk pooling, financial intermediations, indemnification against losses, mobilisation of savings and provision of investment opportunities. Over the past few decades there has been increasing interest in the role of the insurance sector in the economic growth of Africa. This study examines whether there is a relationship between the continent’s economic growth and insurance market activity (life, non-life, and total). Applying panel estimation techniques that are robust to heterogeneity and cross-sectional dependence to a model of panel data for 11 African countries between 1995 and 2016, we find significant evidence in support of such a relationship. Total insurance penetration has a long-term impact on economic growth, and when disaggregated into its components (life and non-life-insurance penetration), we find evidence in support of short-term and long-term impacts on economic growth in both cases. Our study also confirms the feedback hypothesis, as we find a positive, bidirectional causality between insurance market activity and economic growth. We also find that the contribution from non-life insurance market activity towards economic growth far outweighs that of life insurance market activity.

Suggested Citation

  • Mehmet Balcilar & Rangan Gupta & Chien-Chiang Lee & Godwin Olasehinde-Williams, 2020. "Insurance-growth nexus in Africa," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 45(2), pages 335-360, April.
    • Handle: RePEc:pal:gpprii:v:45:y:2020:i:2:d:10.1057_s41288-019-00145-7
    DOI: 10.1057/s41288-019-00145-7
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    More about this item

    Keywords

    Insurance penetration; Growth; Africa; Panel data; Causality;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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