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Insurance-Growth Nexus in Africa

Author

Listed:
  • Mehmet Balcilar

    (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus, Turkey; Department of Economics, University of Pretoria, South Africa and Montpellier Business School, Montpellier, France.)

  • Rangan Gupta

    (Department of Economics, University of Pretoria, Pretoria, South Africa)

  • Chien-Chiang Lee

    (Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan)

  • Godwin Olasehinde-Williams

    (Department of Economics, Eastern Mediterranean University, Famagusta, Northern Cyprus, Turkey)

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.

Suggested Citation

  • Mehmet Balcilar & Rangan Gupta & Chien-Chiang Lee & Godwin Olasehinde-Williams, 2018. "Insurance-Growth Nexus in Africa," Working Papers 201801, University of Pretoria, Department of Economics.
    • Handle: RePEc:pre:wpaper:201801
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    2. Hemrit, Wael & Nakhli, Mohamed Sahbi, 2021. "Insurance and geopolitical risk: Fresh empirical evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 82(C), pages 320-334.

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    More about this item

    Keywords

    Insurance penetration; growth; Africa;
    All these keywords.

    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

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