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The impact of real income on insurance premiums: Evidence from panel data

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  • Lee, Chien-Chiang
  • Chiu, Yi-Bin

Abstract

This 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 Info

Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 21 (2012)
Issue (Month): 1 ()
Pages: 246-260

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Handle: RePEc:eee:reveco:v:21:y:2012:i:1:p:246-260

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Web page: http://www.elsevier.com/locate/inca/620165

Related research

Keywords: Insurance premiums; Real income; Non-linearity; Panel smooth transition regression; Instrumental variable;

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References

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Citations

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Cited by:
  1. Lee, Chien-Chiang & Chiu, Yi-Bin & Chang, Chi-Hung, 2013. "Insurance demand and country risks: A nonlinear panel data analysis," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 68-85.
  2. Rosa Duarte & Vicente Pinilla & Ana Serrano, 2012. "Is there an environmental Kuznets curve for water use? A panel smooth transition regression approach," Documentos de Trabajo dt2012-03, Facultad de Ciencias Económicas y Empresariales, Universidad de Zaragoza.
  3. Lee, Chien-Chiang & Huang, Wei-Ling & Yin, Chun-Hao, 2013. "The dynamic interactions among the stock, bond and insurance markets," The North American Journal of Economics and Finance, Elsevier, vol. 26(C), pages 28-52.

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