Insurance effect on economic growth: a study of selected economies in various phases of development

Previous studies found inconsistent results for insurance-growth nexus. The aim of this study is to examine the relationships between life and non-life insurance with economic growth, and marine insurance with trade openness. This study is different from previous studies in a number of aspects. Firstly, previous studies utilized a single proxy to investigate the insurance-growth nexus. This study utilized four proxies namely net written premium, insurance penetration, insurance density and premium adjusted for population and GDP. Secondly, previous studies assumed common insurance coefficients across countries and emphasizing on the long-term homogeneity aspect only whilst this study accounted for both long-term homogeneity and short-term heterogeneity. The study applies pooled mean group method to examine long-term and short-term relationships between insurances and economic growth for the USA, the UK, China, India, Malaysia and Pakistan over the period of 1980 to 2015. The findings of the study show that there exists a positive and significant relationship between life insurance and economic growth in the long-term and short-term for all selected countries, except when insurance penetration is used as a proxy. However, a positive and significant relationship was observed for non-life insurance and economic growth for all four proxies in the long-term and short-term. The relationship between insurance and economic growth is found to be different across countries and across proxies. Contrary to the previous studies, this study found a significant negative relationship between marine insurance and trade openness in the long-term. This study has important policy implications. Policy interventions such as introducing new insurance products, improving distribution channels, reducing deductibles, facilitating cross border transferability of insurance policies, and increasing insurance awareness campaign may be needed to achieve short-term and long-term growth objectives. Whilst policy makers may need to offer some kind of subsidy or promote competition for marine insurance to make its contribution significantly positive for trade openness.