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Insurance-Growth Nexus in Africa

Mehmet Balcilar, Rangan Gupta, Chien-Chiang Lee () and Godwin Olasehinde-Williams

No 201801, Working Papers from University of Pretoria, Department of Economics

Abstract: Economic growth may be influenced by insurance-market activity through risk pooling, financial intermediations, indemnification against losses, mobilization 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 causal 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, bi-directional causality between insurance-market activity and economic growth. We also find that the contribution from non-life-insurance market activity toward economic growth far outweighs that of life-insurance market activity.

Keywords: Insurance penetration; growth; Africa (search for similar items in EconPapers)
JEL-codes: C33 G22 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2018-01
New Economics Papers: this item is included in nep-afr, nep-fdg and nep-ias
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