Insurance and economic growth nexus: New Evidence from OECD countries

Abstract

This study tackles the debate on the relationship between insurance development and economic growth by providing new evidence on the insurance sector. Most of the existing empirical studies focus primarily on the banking sector. This article applies linear dynamic panel-data approaches to examine the nexus between insurance (life insurance, non-life insurance, and the total insurance) and economic growth in 16 OECD countries from 2009 to 2020. We show that insurance development is associated with economic growth. The relationship between life and non-life insurance premiums and economic growth is non-linear. Based on the analysis of the data, an inverted U-shaped relationship is observed between insurance premiums and economic growth, thereby supporting the hypothesis reported in the literature on the non-linear relationship between financial development and economic growth. This implies that more finance may only be better up to a point, after which it tends to harm growth. Thus, our results confirm that the relationship between the insurance sector and economic growth appears to behave like the association between the financial industry and GDP. These findings offer several useful empirical implications for insurance companies and certain perspectives that would help policymakers, governments in OECD and other regions identify important aspects that can be considered while formulating financial regulations related to insurance activities.