Economic Analysis of Insurance, Uncertainty and Economic Growth

The first essay examines whether there is a relationship between Africa’s economic growth and insurance-market activity (life, non-life, and total). Applying panel-estimation techniques that are robust to heterogeneity and cross-sectional dependence to a model of panel data for 11 African countries between 1995 and 2016, we find significant evidence in support of such a relationship. Total-insurance penetration has a long-term impact on economic growth, and when disaggregated into its components (life- and non-life-insurance penetration), we find evidence in support of short-term and long-term impacts on economic growth in both cases. Our study also confirms the feedback hypothesis, as we find a positive, bi-directional causality between insurance-market activity and economic growth. We also find that the contribution from non-life-insurance market activity toward economic growth far outweighs that of life-insurance market activity. The second essay examines whether the roles of the insurance and banking sectors are complimentary or substitutive in terms of growth effect. Using a dynamic panel-GMM estimation technique, we evaluate the synergistic effect of both sectors on economic growth in a panel of 10 African countries. The insurance-banking-growth nexus was also examined through bootstrap panel causality tests. The results show that life insurance market and the banking sector are complimentary and that the non-life insurance market and the banking sector are also complimentary. We find that overall, the relationship between the insurance and banking sectors in Africa is a complimentary one and that their synergistic impact on economic growth is positive. The feedback hypothesis was also confirmed in the relationship between the insurance sector and economic growth and between the banking sector and economic growth. The third essay tests for asymmetric causal relationships between financial systems (insurance markets, banking systems and stock markets) and economic performance in nine African countries over a 24-year period. This section of the study posits that it is important that asymmetric causal effects are taken into account when empirically examining the finance-growth nexus since it is possible that the economy (financial system) would react differently to changes in financial system (economy), depending on whether it is a positive or negative change. It proposes testing for asymmetric causality by using cumulative sums of positive and negative shocks via a bootstrap simulation approach. The results show that the pattern of causality varies across the selected countries and the following hypotheses were confirmed: negative and positive demand-following hypotheses, negative and positive supply-following hypotheses, and negative and positive feedback hypotheses. The final essay investigates the impact of economic policy uncertainty on insurance premiums, controlling for the effect of real income, in a panel of 15 countries over the period 1998-2016. Findings from the error correction based panel estimations show that the insurance sector is not immune to the effects of economic policy uncertainty and real income. Economic policy uncertainty initially raises insurance premiums in the short run but eventually lessens it in the long run whereas real income increases insurance premiums both in the short and long run, although its long run impact is greater than the short run impact. Also, economic policy uncertainty exerts a bigger influence on non-life insurance premium than on life insurance premium. Keywords: Insurance market; Financial systems; Economic growth; Africa; Panel ARDL; Dynamic GMM; symmetric & asymmetric Causality; Synergistic effect; Economic policy uncertainty.