Chapter 1: A Panel Cointegration Analysis of Insurance Development and FDI Nexus

Introduction: The possible role of foreign direct investments (FDIs) in the insurance services industry has not received much research compared to the banking industry. The FDI inflows are seen as crucial to the general economic growth of these emerging European transition countries because the insurance sector is still growing and integrating.

Purpose: This chapter explores whether the increase in FDI inflows leads to higher life and non-life insurance penetration in different groups of European transition countries and European post-transition countries.

Methodology: The study employs annual data between 1995 and 2021 using dynamic ordinary squares (DOLS) estimator and Dumitrescu and Hurlin (2012) panel causality methods.

Findings: The study found evidence about the link between FDI and life and non-life insurance penetration, where their gains are marginal and very weak when controlling the effect of Gross Domestic Product per capita (GDPPC) in the long run. More specifically, the effect of FDI on insurance development is greater in the European post-transition countries with higher GDPPC and FDI inflows than in the European transition countries.

These discrepancies may be attributed to the various stages at which their development policies have advanced as well as the overall execution of reforms within the insurance industry. The findings suggest affirmative action programs should be put in place to attract FDI inflows in general and insurance in particular.