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Insurance demand and country risks: A nonlinear panel data analysis

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  • Lee, Chien-Chiang
  • Chiu, Yi-Bin
  • Chang, Chi-Hung

Abstract

This paper investigates the impact of country risks, including political, financial, and economic risks, on the income elasticity of insurance demand. Using the panel smooth transition regression model, we find that there is a significant regime-switching effect concerning the impact of country risks on the income elasticity of insurance demand. A full-sample analysis shows that the income elasticity of insurance demand decreases when country risks diminish. In a subsample analysis based on income level, legal origin, and restriction on banks' participation in insurance activities, we find that the elasticity diminishes in general when economic risk drops. When political risk is lower, the elasticity decreases in countries with high-income, common law origin, and insurance activities permitted by banks, whereas a clear pattern cannot be identified in the case of financial risk.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jimfin:v:36:y:2013:i:c:p:68-85
    DOI: 10.1016/j.jimonfin.2013.03.009
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    Cited by:

    1. repec:eee:eneeco:v:66:y:2017:i:c:p:571-581 is not listed on IDEAS
    2. Pei-Fen Chen & Jhih-Hong Zeng & Chien-Chiang Lee, 2015. "Monetary Policy and the Diversification–Profitability Linkage in Banking: Evidences from Emerging Market Economies," South African Journal of Economics, Economic Society of South Africa, vol. 83(4), pages 576-597, December.
    3. Tsangyao Chang & Chien-Chiang Lee & Hsiao-Ping Chu, 2015. "Revisiting the Defense-Growth nexus in European countries," Defence and Peace Economics, Taylor & Francis Journals, vol. 26(3), pages 341-356, June.
    4. repec:spr:soinre:v:136:y:2018:i:1:d:10.1007_s11205-016-1534-8 is not listed on IDEAS
    5. Christian Biener & Martin Eling & Shailee Pradhan, 2015. "Recent Research Developments Affecting Nonlife Insurance—The CAS Risk Premium Project 2013 Update," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 18(1), pages 129-141, March.
    6. Carmine Gabriele & Aitor Erce & Marialena Athanasopoulou & Juan Rojas, 2017. "Debt Stocks Meet Gross Financing Needs: A Flow Perspective into Sustainability," Working Papers 24, European Stability Mechanism.
    7. Rangan Gupta & Amine Lahiani & Chi-Chuan Lee & Chien-Chiang Lee, 2016. "Asymmetric dynamics of insurance premium: The impacts of output and economic policy uncertainty," Working Papers 201673, University of Pretoria, Department of Economics.
    8. 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.
    9. Chen, Pei-Fen & Lee, Chien-Chiang & Chiu, Yi-Bin, 2014. "The nexus between defense expenditure and economic growth: New global evidence," Economic Modelling, Elsevier, vol. 36(C), pages 474-483.

    More about this item

    Keywords

    Insurance demand; Panel smooth transition regression; Political risk; Financial risk; Economic risk;

    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, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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