The Importance of Insurance Sector Penetration for Economic Growth in China: Fresh Evidence from Quantile Cointegration and Causality Analysis

The insurance sector is important to the economy as it plays an essential role in risk management by providing businesses and individuals with financial protection against unforeseen events. The insurance sector promotes stability and facilitates economic growth. Additionally, it mobilizes substantial investments and funds that contribute to the overall liquidity and development of financial markets. However, the relationship can demonstrate diminishing returns, as extremely high insurance penetration levels may divert resources away from productive sectors of the economy. Thus, this research aims to identify the asymmetric impact of the insurance sector at aggregated and disaggregated levels on economic growth over the distribution of quantiles. For this purpose, quarterly data from 1994Q1-2022Q4 has been used in the case of China. The quantile cointegration exhibits the presence of a long-run relationship between insurance penetration and economic growth with a verifying degree of significance across all quantiles. Similarly, the quantile regression confirms the positive impact of insurance penetration on economic growth across various data points on the distribution. Moreover, we find bidirectional causality between for various quantiles with the exception of unidirectional causality for a few quantiles. For policy perspective, policymakers should strengthen the environment that pushes competition and innovation within the insurance industry by introducing a regulatory framework that facilitates fair competition and safeguards consumer protection. Further, facilitating investment in infrastructure projects and stimulating public–private partnerships can support the insurance industry by increasing insurable assets.