Insurance effect on economic growth – among economies in various phases of development

Abstract

Purpose: The purpose of this paper is to explore the relationship between insurance and economic growth for six (developed, emerging and developing) countries over the period of 1980 to 2015. Design/methodology/approach: The study applies panel auto-regressive distributed lagged (PMG/ARDL) method to examine long-term and short-term relationship between insurance and economic growth for the USA, the UK, China, India, Malaysia and Pakistan. Findings: The authors concluded that there exists a positive and significant relationship between life insurance, non-life insurance, trade openness, stock-market development and economic growth in the long run as p-value is less than 5 per cent. This study also found a significant relationship between employment rate, banking development and economic growth for the long run but the direction is negative. Foreign direct investment shows an insignificant relationship with economic growth in the long run. The results highlighted a significant and positive relationship between non-life insurance and economic growth in the short-run for the USA, the UK, China, India, Malaysia and Pakistan. Moreover, the relationship between life insurance and economic growth is positive and significant for India, Pakistan and the UK. Results reveal a significant but a negative relationship between life insurance and economic growth for the USA, China and Malaysia. Research limitations/implications: Analysis is performed for only six countries and results of these six might not represent the whole world. Practical implications: This research would help policymaker to consider wider aspects of insurance rather than considering it complementary service industry. Social implications: Every individual, today, spends a huge amount of funds to purchase insurance. He or she should be aware of the wider social impact of their spending apart from risk transferring. Originality/value: Researchers recently shifted their focus to investigate the relationship between insurance and economic growth but the topic is still lacking sufficient literature and various knowledge gaps. The study is an attempt to contribute in terms of refinement of the already existing body of knowledge and to fill literature gap. In addition, apart from the insurance–economy relationship, very few empirical studies used financial, banking and stock market along with insurance, proxies to measure accurate insurance contribution. Another element of originality lies in the comparative analysis of developed, emerging and developing countries.