The influence of short-term insurance industry on the finance-growth nexus in South Africa

Abstract

This study seeks to establish the influence of the short-term insurance industry on financial and economic development in South Africa. The study uses quarterly data from 1994 to 2009 to perform the Johansen (1991) co-integration tests and subsequently the Granger causality tests to establish the relationship between the short-term insurance industry and the finance-growth nexus. The study is premised on the 'demand-following' and 'supply-leading' propositions by Patrick (1966). Results show that the insurance industry has a positive relationship with economic development. The development of the short-insurance industry heavily relies on economic development rather than on banking sector development and financial deepness. This suggests that formulating policies that promote economic growth directly leads to the development of the shortterm insurance industry in South Africa confirming the demand-following proposition.