– The purpose of this paper is to examine the causal relationship between insurance penetration and economic growth in eight selected African countries.
– The auto-regressive distributed lags bounds approach to cointegration is employed on annual time-series data from 1990 to 2010 to test the causal relationship between insurance and economic growth in Algeria, Gabon, Kenya, Madagascar, Mauritius, Morocco, Nigeria and South Africa. The ratio of life and non-life insurance premiums to gross domestic product are employed as proxies for insurance market development.
– The results of the bound test shows a long-run relationship between insurance market activities and economic growth for Kenya, Mauritius, Morocco, Nigeria and South Africa. Causality analysis within the vector error correction model indicates a uni-directional causality from insurance market development to economic growth except for Morocco where there is evidence of a bi-directional causality. Causality within the vector autoregressive framework also provides evidence of a uni-directional causality for Algeria and Madagascar to support the “supply-leading” hypothesis while mixed causality was found for Gabon.
– This findings provides policy direction for governments and regulatory authorities for developing insurance market in the sample countries.
– This is the first study to examine the finance-growth relationship from the perspective of insurance markets in a cross-section of African countries.
