The impact of real income on insurance premiums: Evidence from panel data
AbstractThis study applies a recently-developed panel smooth transition regression (PSTR) model and takes into account the potential endogeneity biases in order to establish country-specific and time-specific elasticities of insurance premiums with respect to real income for 36 selected countries from the period 1979–2007. The PSTR model endogenously determines the non-linear insurance-income nexus and allows for a continuum of an intermediate regime among extremes. We find overwhelming evidence in support of a non-linear income threshold. The life and non-life insurance premiums are inelastic and elastic with respect to real income, suggesting that they are a necessary good and luxury good respectively. Furthermore, as time goes on, the income elasticities of insurance premiums present a similar upward trend, implying that the impact of economic development on insurance premiums is more important in recent periods.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Economics & Finance.
Volume (Year): 21 (2012)
Issue (Month): 1 ()
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Web page: http://www.elsevier.com/locate/inca/620165
Insurance premiums; Real income; Non-linearity; Panel smooth transition regression; Instrumental variable;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
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