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Insurance development and the finance-growth nexus: Evidence from 34 OECD countries

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  • Pradhan, Rudra P.
  • Arvin, Mak B.
  • Norman, Neville R.

Abstract

This paper examines causal relationships between insurance market development, financial development, and economic growth in 34 OECD countries for the period 1988–2012. Insurance market development is defined in terms of life, non-life, and total insurance pervasiveness, both by density and penetration. Financial development is a composite index constructed from eight financial development indicators relating to banking and stock markets. We use a panel vector auto-regression model to reveal the nature of Granger causality among the variables. Our results reveal that insurance market development specifically and financial market development overall seem both to be long-run causative factors of economic growth. On the other hand, our short-run causality results show a diverse pattern of short-run adjustment dynamics between the variables, including the possibility of feedback between them in several instances.

Suggested Citation

  • Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "Insurance development and the finance-growth nexus: Evidence from 34 OECD countries," Journal of Multinational Financial Management, Elsevier, vol. 31(C), pages 1-22.
    • Handle: RePEc:eee:mulfin:v:31:y:2015:i:c:p:1-22
    DOI: 10.1016/j.mulfin.2015.02.001
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    13. Pradhan, Rudra P. & Arvin, Mak B. & Bahmani, Sahar, 2015. "Causal nexus between economic growth, inflation, and stock market development: The case of OECD countries," Global Finance Journal, Elsevier, vol. 27(C), pages 98-111.
    14. Pradhan, Rudra P. & Arvin, Mak B. & Norman, Neville R., 2015. "The dynamics of information and communications technologies infrastructure, economic growth, and financial development: Evidence from Asian countries," Technology in Society, Elsevier, vol. 42(C), pages 135-149.
    15. Rudra P. Pradhan & Mak B. Arvin & Sara E. Bennett & Mahendhiran Nair & John H. Hall, 2016. "Bond Market Development, Economic Growth and Other Macroeconomic Determinants: Panel VAR Evidence," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 23(2), pages 175-201, June.
    16. Rudra P. Pradhan, 2018. "Development of stock market and economic growth: the G-20 evidence," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 8(2), pages 161-181, August.
    17. repec:mth:ijafr8:v:8:y:2018:i:4:p:399-423 is not listed on IDEAS
    18. Balcilar, Mehmet & Gupta, Rangan & Lee, Chien-Chiang & Olasehinde-Williams, Godwin, 2018. "The synergistic effect of insurance and banking sector activities on economic growth in Africa," Economic Systems, Elsevier, vol. 42(4), pages 637-648.
    19. Khalil Mhadhbi & Chokri Terzi & Ali Bouchrika, 2020. "Banking sector development and economic growth in developing countries: a bootstrap panel Granger causality analysis," Empirical Economics, Springer, vol. 58(6), pages 2817-2836, June.
    20. Su-Yin Cheng & Han Hou, 2022. "Financial development, life insurance and growth: Evidence from 17 European countries," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 47(4), pages 835-860, October.
    21. Magda Kandil & Muhammad Shahbaz & Mantu Kumar Mahalik & Duc Khuong Nguyen, 2017. "The drivers of economic growth in China and India: globalization or financial development?," International Journal of Development Issues, Emerald Group Publishing Limited, vol. 16(1), pages 54-84, April.

    More about this item

    Keywords

    Insurance market development; Financial development; Economic growth; OECD countries;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O2 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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