Finance and growth: new evidence on the role of insurance

Azman-saini, W.N.W and Smith, Peter (2010): Finance and growth: new evidence on the role of insurance. Published in: South African Journal of Economics , Vol. 79, No. 2 (2011): pp. 111-127.

Abstract

This paper provides new evidence that sheds light on the the impact of insurance sector development on output growth, capital accumulation, and productivity improvement, using data from 51 countries (developed and developing) during 1981-2005. The dynamic panel data analysis results demonstrate that insurance sector development affects growth predominantly through productivity improvement in developed countries, while in developing countries it promotes capital accumulation.

• Item Type: MPRA Paper
• Language: English
• Keywords: Insurance; financial development; economic growth; productivity growth; capital accumulation
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G22 - Insurance ; Insurance Companies ; Actuarial Studies; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

References

ABIAD, A., DETRAGIACHE, E., & TRESSEL, T. (2010) A New Database of Financial Reforms, IMF Staff Papers, forthcoming.

ABU-BADER, S. & ABU-QARN, A. (2008) Financial development and economic growth: The Egyptian experience. Journal of Policy Modeling 30, 887-898.

ACEMOGLU, D., AGHION, P. & ZILIBOTTI, F. (2006) Distance to Frontier, Selection, and Economic Growth. Journal of the European Economic Association 4, 37-74.

ANG, J.B. (2010a) Savings Mobilization, Financial Development and Liberalization: The Case of Malaysia, Review of Income and Wealth, forthcoming.

ANG, J. B. (2010b) Finance and Inequality: The Case of India, Southern Economic Journal, 76, 738-61.

ANG, J. B. (2010c) Financial Sector Reforms, Patent Protection and Knowledge Accumulation in India, World Development, 38, 1070-81.

ANG, J.B. (2008) A Survey of Recent Developments in the Literature of Finance and Growth. Journal of Economic Surveys, 22, 536-576.

ANGEER, M. (1993) Insurance supervision in OECD Member countries. Policy Issues in Insurance. Paris: OECD Publication.

ARELLANO, M. & BOND, S. (1991) Some Tests of Specification for Panel Data: Monte Carlo Evidence with an Application for Employment Equations. Review of Economic Studies, 58, 277-97.

ARELLANO, M. & BOVER, O. (1995) Another look at the instrumental-variable estimation of error-components models. Journal of Econometrics, 68, 29-52.

AZMAN-SAINI, W. N. W., BAHARUMSHAH, A. Z. & LAW, S. H. (2010) Foreign direct investment, economic freedom and economic growth: International evidence. Economic Modelling, 27, 1079-1089.

BECK, T. & LEVINE, R. (2004) Stock markets, banks and growth: Panel evidence. Journal of Banking and Finance, 28, 423-442.

BECK, T., LEVINE, R. & LOAYZA, N. (2000) Finance and the sources of growth. Journal of Financial Economics, 58, 261-300.

BENCIVENGA, V. R. & SMITH, B. D. (1991) Financial Intermediation and Endogenous Growth. Review of Economic Studies, 58, 195-209.

BLUNDELL, R. & BOND, S. (1998) Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87, 115-143.

BOWSHER, C. G. (2002) On testing overidentifying restrictions in dynamic panel data models. Economics Letters, 77, 211-220.

BROWNE, M. J., CHUNG, J. W. & FREES, E. W. (2000) International property-liability insurance consumption The Journal of Risk and Insurance, 67, 73-90.

CATALAN, M., IMPAVIDO, G. & MUSALEM, A. (2000) Contractual Savings or Stock Markets Development: Which Leads? . World Bank Policy Research Paper No.2421.

CONYON, M. J. & LEECH, D. (1994) Top Pay, Company Performance and Corporate Governance. Oxford Bulletin of Economics and Statistics, 56, 229-247.

DEMETRIADES, P. & HUSSEIN, K. (1996) Does financial development causes economic growth? Journal of Development Economics, 15, 385-409.

DEMETRIADES, P. & LAW, S. (2006) Finance, institutions and economic development. International Journal of Finance and Economics, 11, 245-260.

DEMIRGUC-KUNT, A. & MAKSIMOVIC, V. (1998) Law, Finance, and Firm Growth. Journal of Finance 53, 2107-2137.

FUKUYAMA , F. (1995) Trust: The social virtues and the creation of Prosperity London, Hamish Hamilton.

GRACE, M. & REBELLO, J. (1993) Financing and the Demand for Corporate Insurance. The Geneva Papers on Risk and Insurance, 18, 147-172.

GREENWOOD, J. & JOVANOVIC, B. (1990) Financial Development, Growth, and the Distribution of Income. Journal of Political Economy 98, 1076-1107.

GWARTNEY, J. & LAWSON, R. (2006) Economic Freedom of the World: 2006 Annual Report. Vancouver: The Fraser Institute. Data retrieved from www.freetheworld.com.

HANSEN, L. (1982) Large sample properties of generalized method of moments estimators. Econometrica 50, 1029-54.

HOLTZ-EAKIN, D., NEWEY, W. & ROSEN, H. S. (1988) Estimating vector autoregressions with panel data. Econometrica 56, 1371-95.

HUSSELS, S., WARD, D. & ZURBRUEGG, R. (2005) Stimulating the Demand for Insurance, Risk Management and Insurance Review, 8(2): 257-278.

KING, R. & LEVINE, R. (1993a) Finance and growth: Schumpeter might be right. Quarterly Journal of Economics, 108, 717-737.

KING, R. & LEVINE, R. (1993b) Finance, entrepreneurship, and growth: theory and evidence. Journal of Monetary Economics 32 513-542.

KUGLER, M. & OFOGHI, R. (2005) Does Insurance Promote Economic Growth? Evidence from the UK. Money Macro and Finance (MMF) Research Group Conference 2005. Rethymno, Greece.

LA PORTA, R., LOPEZ-DE-SILANES, F., SHLEIFER, A. & VISHNY, R. (1997) Legal determinants of external finance. Journal of Finance 52, 1131-1150.

LA PORTA, R., LOPEZ-DE-SILANES, F., SHLEIFER, A. & VISHNY, R. W. (1998) Law and Finance. Journal of Political Economy, 106, 1113-1155.

LA PORTA, R., LOPEZ-DE-SILANES, F., SHLEIFER, A. & VISHNY, R. W. (1999) The quality of government. Journal of Law, Economics and Organization, 15, 222-279.

LEVINE, R. (2005) Finance and Growth: Theory and Evidence. Handbook of Economic Growth 1 865-934.

LEVINE, R., LOAYZA, N. & BECK, T. (2000) Financial intermediation and growth: causality and causes. Journal of Monetary Economics 46, 31- 77.

LEVINE, R. & ZERVOS, S. (1998) Stock markets, banks and economic growth American Economic Review 88 537-558.

LUINTEL, K. & KHAN, M. (1999) A Quantitative Reassessment of the Finance-Growth Nexus: Evidence from a Multivariate VAR. Journal of Development Economics, 60, 381-405.

OUTREVILLE, J. (1990) The Economic Significance of Insurance Markets in Developing Countries. The Journal of Risk and Insurance, 57, 487-498.

PAGANO, M. (1993) Financial markets and growth: an overview. European Economic Review, 37, 613-622.

RAJAN, R. & ZINGALES, L. (1998) Financial Dependence and Growth American Economic Review, 88 559-86.

REYNOLDS, T. & FLORES, A. (1996) Foreign Law: Current Sources of Codes and Basic Legislation in Jurisdictions of the World, Littleton, CO, Fred B. Rothman & Co.

RIOJA, F. & VALEV, N. (2004a) Does one size fit all? A reexamination of the finance and growth relationship. Journal of Development Economics, 74, 429-447.

RIOJA, F. & VALEV, N. (2004b) Finance and sources of growth at various stage of economic development. Economic Inquiry, 42, 127-140.

ROODMAN, D. (2009a) How to do xtabond2: An introduction to difference and system GMM in Stata. Stata Journal, 9, 86-136.

ROODMAN, D. (2009b) A Note on the Theme of Too Many Instruments. Oxford Bulletin of Economics and Statistics, 71, 135-158.

RULE, D. (2001) Risk Transfer Between Banks, Insurance Companies and Capital Markets. Financial Stability Review, 11, 127-159.

SCHUMPETER, J. (1934) The theory of economic development, Cambridge, MA, Harvard University Press.

SKIPPER, H. (1997) Foreign Insurers in Emerging Markets: Issues and Concerns. Center for Risk Management and Insurance, Occasional Paper, 97-102.

UNCTAD (1964) Proceedings of the United Nations Conference on Trade and Development, Vol. I, Final Act and Report, p. 55, annex A.IV.23.

WARD, D. & ZURBUREGG, R. (2000) Does Insurance Promote Economic Growth? Evidence form OECD Countries. Journal of Risk and Insurance, 67, 489-506.

WEBB, I., GRACE, M. & SKIPPER, H. (2002) The Effect of Banking and Insurance on the Growth of Capital and Output. Center for Risk Management and Insurance, Working Paper 02.

WINDMEIJER, F. (2005) A finite sample correction for the variance of linear efficient two-step GMM estimators. Journal of Econometrics 126, 25-51.

YANG, Y. Y. & YI, M. H. (2008) Does financial development cause economic growth? Implication for policy in Korea. Journal of Policy Modeling, 30, 827-840.

ZOU, H. & ADAMS, M. (2006) The Corporate Purchase of Property Insurance: Chinese Evidence. . Journal of Financial Intermediation, 15, 156-196.