Financial development, life insurance and growth: Evidence from 17 European countries

Su-Yin Cheng () and Han Hou ()
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Su-Yin Cheng: Shih Hsin University
Han Hou: Shih Chien University

The Geneva Papers on Risk and Insurance - Issues and Practice, 2022, vol. 47, issue 4, No 4, 835-860

Abstract: Abstract This study constructs a simple model to demonstrate that life insurance and financial development simultaneously affect economic growth. We provide empirical evidence on the model’s critical prediction. By analysing panel data for 17 advanced European countries from 1980 to 2015, the results show that the effect of private credit on real economic growth is negative in both the long and short run. The negative finance–growth nexus may be due to excessive financing in European countries. The financial crises that occurred during the study period may also have contributed to the negative effects. We find that an increase in the consumption of life insurance is a viable and long-term policy since life insurance penetration promotes long-term economic growth but is not obvious in the short term. Finally, life insurance development is a panacea in the finance–growth nexus since it not only helps moderate long-term real growth volatility but also absorbs the side effect of private credit on real economic growth.

Keywords: Excessive financing; Life insurance; Pooled mean group estimator; Economic growth; Financial crises (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1057/s41288-021-00247-1

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