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Economic growth and insurance development: The role of institutional environments

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  • Lee, Chien-Chiang
  • Chang, Chi-Hung
  • Arouri, Mohamed
  • Lee, Chi-Chuan

Abstract

This paper investigates how institutional environments shape the relation between insurance and economic growth by applying an innovative dynamic panel threshold model. Using multiple general measures related to political, economic, and legal environments to assess the soundness of institutional environments, we find that the relation between life insurance and economic growth is negative in the regime with relatively unhealthier institutional environments. However, this significantly negative effect becomes insignificant after a certain level or threshold of institutional quality has been achieved. A generally unhealthy institutional circumstance could deter the growth effect of life insurance sectors. This result might be explained by the problem of moral hazard and adverse selection, the behavior of risk-taking, as well as macroeconomic volatility.

Suggested Citation

  • Lee, Chien-Chiang & Chang, Chi-Hung & Arouri, Mohamed & Lee, Chi-Chuan, 2016. "Economic growth and insurance development: The role of institutional environments," Economic Modelling, Elsevier, vol. 59(C), pages 361-369.
  • Handle: RePEc:eee:ecmode:v:59:y:2016:i:c:p:361-369
    DOI: 10.1016/j.econmod.2016.08.010
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    2. Abdulnasser Hatemi-J & Chi-Chuan Lee & Chien-Chiang Lee & Rangan Gupta, 2018. "Insurance Activity and Economic Performance: Fresh Evidence from Asymmetric Panel Causality Tests," Working Papers 201828, University of Pretoria, Department of Economics.
    3. Dragos Simona Laura & Mare Codruta & Drule Alexandra Maria, 2016. "Overall Governance Index for Developed and Emerging European Life Insurance Markets," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 6(10), pages 381-391, October.
    4. repec:eee:ecmode:v:71:y:2018:i:c:p:272-278 is not listed on IDEAS
    5. repec:eee:intfin:v:51:y:2017:i:c:p:155-170 is not listed on IDEAS

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