Insurance Penetration and Institutional Spillover on Economic Growth: A Dynamic Spatial Econometric Approach on the Asian and Europe Region

Kurukulasuriya Dinesh Udana Devindra Fernando, Thambawita Maddumage Nimali Tharanga, Narayanage Jayantha Dewasiri, Kiran Sood, Simon Grima and Eleftherios Thalassinos ()
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Kurukulasuriya Dinesh Udana Devindra Fernando: Department of Accountancy and Finance, Sabaragamuwa University of Sri Lanka, Belihuloya 70140, Sri Lanka
Thambawita Maddumage Nimali Tharanga: Department of Accountancy and Finance, Sabaragamuwa University of Sri Lanka, Belihuloya 70140, Sri Lanka
Narayanage Jayantha Dewasiri: Department of Accountancy and Finance, Sabaragamuwa University of Sri Lanka, Belihuloya 70140, Sri Lanka
Kiran Sood: Chitkara Business School, Chitkara University, Rajpura 140401, Punjab, India
Simon Grima: Department of Insurance and Risk Management, Faculty of Economics, Management and Accountancy, University of Malta, MSD 2080 Msida, Malta
Eleftherios Thalassinos: Department of Insurance and Risk Management, Faculty of Economics, Management and Accountancy, University of Malta, MSD 2080 Msida, Malta

JRFM, 2023, vol. 16, issue 8, 1-21

Abstract: The contemporary environment is interrelated, and interactions between markets, countries, and international actors at different levels exist in every corner of the globe. Amid this, the failures of the free-market system have paved the way for institutionalism, which proposes minimising transaction costs, substantial property rights, and enabling proper contract enforcement. Studies on institutions and insurance development spillover concerning growth relationships are rare and a critical area needing exploration. This study explores the behaviour of economic development in terms of potential spatial dependencies and spatial institutional and insurance development spillover on economic growth. To measure insurance development by the life insurance and non-life insurance penetration, economic growth by per capita gross domestic product (GDP), and indicators of good governance for institutions in the nations. The study explored the spatial impact between countries using panel data of 56 countries between 2002 and 2020 representing the Asian and European regions. We did this by using dynamic spatial econometric modelling (DSEM) on institutional and insurance development and seeing the spatial implications and the spatial institutional impact moderated by insurance development on growth. Results indicate that developing the life insurance and non-life insurance of surrounding countries creates a spillover impact on the local countries’ economies. In contrast, institutions have created a reverse spatial spillover impact on local countries. However, life insurance development, moderated through accountability and government effectiveness, has created a spatial spillover between countries. Both life and non-life penetration moderated by the control of corruption and overall institutions have shown a reverse spillover on countries’ economies. This suggests that global governance is a positive-sum game, and monitoring and governance structures have failed at the international level concerning separate countries. Therefore, it is seen that to prevent institutional failure at the state level, good governance and links with the global governance structure could disrupt or energise local institutions.

Keywords: institutions; insurance development; dynamic spatial econometric modelling; spillover effect (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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