The Study of Co-Integration and Casual Relationship Between Macroeconomic Variables and Insurance Penetration Ratio

Insurance industry plays a key role in countries growth and development. Given the significant effect of economic environment on insurance industry, researchers have always attempted to identify the variables that affect this industry. In this direction, this study aims to investigate the casual relationship between macroeconomic variables i.e. gross domestic production (GDP), Inflation, and national per capita income with the insurance penetration ratio. To study the relationship and causality between the selected variables, the study applied the Johansenand Juselius co-integration and Granger causality methodology. The required data were collected from Iranian Central Bank, Statistics Center and Central insurance for the period of 1981-2011. The study found that the underlying macroeconomics variables and insurance penetration ratio are co-integrated and in short term; there is Bidirectional causal relationship between national per capital income and the insurance penetration ratio. The results further demonstrate that there is unidirectional causal relationship from the insurance penetration ratio to the gross domestic product (GDP). In the case of inflation and insurance penetration ratio, the study found no causal relationship between them. Finally through the use of combined test, the results suggest a causal relationship between inflation, national per capita income and GDP, and insurance penetration ratio in the long-run.