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Does Insurance Promote Economic Growth? Evidence from BRICS Countries

S. Devarakonda and J. Chittineni
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S. Devarakonda: Vignana Jyothi Institute of Management, India
J. Chittineni: Vignana Jyothi Institute of Management, India

Journal of Applied Management and Investments, 2019, vol. 8, issue 3, 135-146

Abstract: The influence of economic growth is realized through the functions of financial intermediaries – the mobilization of savings, the reduction in the cost of capital through economies of scale and specialization, the provision of risk management and liquidity, the improvement of resource allocation. Given the vast body of research on the relationship between bank/capital market – finance and economic growth, there is definitely a need for more empirical work on the insurance-growth nexus. Insurance companies play a major role in these functions and thus should also play a major role in economic growth, as they are the main risk management resource for companies and individuals. Therefore, according to the theory, the insurance sector is one of the factors contributing to economic growth. This paper examines the short- and long-run dynamic relationships exhibited between economic growth and growth in the insurance industry for BRICS countries. This is achieved by conducting a co-integration analysis on a unique set of annual data for GDP per capita and total insurance penetration, life insurance penetration and non-life insurance penetration in each country from 1990 to 2014. The results from the tests suggest that in these countries, the economic growth. Granger causes insurance development and the relationship is unidirectional. Moreover, the results indicate that these relationships are country specific and any discussion of whether the insurance industry does promote economic growth will be dependent on a number of national circumstances.

Keywords: insurance development; economic growth; insurance penetration; co-integration; Granger causality (search for similar items in EconPapers)
JEL-codes: G22 O47 C12 (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:ods:journl:v:8:y:2019:i:3:p:135-146