Does Insurance Matter for Growth: Empirical Evidence from OECD Countries

This paper uses disaggregated data on real insurance premiums, including life and non-life insurance premiums, to examine the interrelationship between insurance markets' activities and economic growth for 10 selected OECD countries during the up-to-date 1979-2006 period. We take recently developed panel unit-root tests, heterogeneous panel cointegration tests, and panel causality techniques and conclude that there is fairly strong evidence favoring the hypothesis of a long-run equilibrium relationship between real GDP and insurance markets' activities after allowing for the heterogeneous country effect. The results of the long-run panel regression parameter indicate a significantly positive relationship between real GDP and the activities within the insurance market, while a development from the non-life insurance market has a greater impact on real GDP than the activities in the life insurance market do. By implementing the dynamic panel-based error correction model, we determine that insurance markets' development and economic growth present both the long-run and short-run bidirectional causalities.