Abstract
This paper analyses the link between bank credit to private sector and insurance (life, non-life, and total insurance) activity and the role of globalization level in this relationship. To do this, we estimated with PMG estimator on a sample of 20 countries of Sub-Saharan African (SSA) over the period from 1990 to 2017. The empirical results indicate the real banking credit density is positively associated with the development of life insurance and total insurance activity, even after controlling for the effect of other determinants of insurance (life and non-life) density. Furthermore, the level of globalization is found to have a favourable effect on the extent to which banking credit influences the development of insurance activity, suggesting that the globalization is an opportunity to accelerate the development of insurance sector in SSA.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
From Swiss Re explanation, life insurance premiums are supplemented by estimated premiums for group pension business; non-life insurance includes state funds, accident and health insurance, regardless of how these lines are classified in the individual countries.
These countries are: Benin, Burkina Faso, Botswana, Cote d'Ivoire, Cameroon, Cabo Verde, Ethiopia, Ghana, Kenya, Madagascar, Mali, Mozambique, Malawi, Nigeria, Senegal, Chad, Togo, Uganda, South Africa and Zambia.
References
Allen F, Santomero AM (2001) What do financial intermediaries do? J Bank Financ 25:271–294. https://doi.org/10.1016/S0378-4266(99)00129-6
Arena M (2008) Does insurance market activity promote economic growth? A cross-country study for industrialized and developing countries. J Risk Insur 75:921–946. https://doi.org/10.1111/j.1539-6975.2008.00291.x
Beck T, Webb I (2003) Economic, demographic, and institutional determinants of life insurance consumption across countries. World Bank Econ Rev 17:51–88
Breusch TS, Pagan AR (1980) The Lagrange multiplier test and its applications to model specification in econometrics. Rev Econ Stud 47:239. https://doi.org/10.2307/2297111
Browne MJ, Kim K (1993) An international analysis of life insurance demand. J Risk Insur 60:616–634
Chang C-H, Lee C-C (2012) Non-linearity between life insurance and economic development: a revisited approach. Geneva Risk Insur Rev 37:223–257. https://doi.org/10.1057/grir.2011.10
Chen P-F, Lee C-C, Lee C-F (2012) How does the development of the life insurance market affect economic growth? Some international evidence. J Int Dev 24:865–893. https://doi.org/10.1002/jid
Čihák M, Demirgüç-Kunt A, Feyen E, Levine R (2012) Benchmarking financial systems around the world. World bank policy research working paper WPS6175, pp 1–58
Dickinson G (1998) The economic role of the insurance sector in the risk transfer-capital market nexus. Geneva Pap Risk Insur 23:519–529
Dreher A, Gaston N, Martens P, Van BL (2008) Measuring globalization-opening the black box. A critical analysis of globalization indices. Glob Glob Stud 1:129–147
Enz R (2000) The S-curve relation between per-capita income and insurance penetration. Geneva Pap Risk Insur 25:396–406. https://doi.org/10.1111/1468-0440.00072
Feyen E, Lester R, Rocha R (2011) What drives the development of the insurance sector? An empirical analysis based on a panel of developed and developing countries. Policy research working paper, pp 117–139
Grace MF, Rebello MJ (1993) Financing and the demand for corporate insurance. Geneva Pap Risk Insur Theory 18:147–172
Gygli S, Haelg F, Sturm JE (2018) The KOF globalization index-revisited. KOF Working Papers, 439
Haiss P, Sümegi K (2008) The relationship between insurance and economic growth in Europe: a theoretical and empirical analysis. Empirica 35:405–431
Huang H-C, Fang W, Miller SM, Yeh C-C (2015) The effect of growth volatility on income inequality. Econ Model 45:212–222. https://doi.org/10.2139/ssrn.3292967
Im KS, Pesaran MH, Shin Y (1997) Testing for unit roots in heterogeneous panels. University of Cambridge, Cambridge
Kao C (1999) Spurious regression and residual-based tests for cointegration in panel data. J Econ 90:1–44. https://doi.org/10.1016/S0304-4076(98)00023-2
Kugler M, Ofoghi R (2005) Does insurance promote economic growth? Evidence from the UK. Workin paper in University of Southampt
Lee CC (2013) Insurance and real output: the key role of banking activities. Macroecon Dyn 17:235–260. https://doi.org/10.1017/S1365100511000101
Lee CC, Lin CW (2016) Globalization, political institutions, financial liberalization, and performance of the insurance industry. North Am J Econ Financ 36:244–266. https://doi.org/10.1016/j.najef.2016.01.007
Lee C-C, Lee C-C, Chiu Y-B (2013a) The link between life insurance activities and economic growth: some new evidence. J Int Money Financ 32:405–427. https://doi.org/10.1016/j.jimonfin.2012.05.001
Lee CC, Bin CY, Chang CH (2013b) Insurance demand and country risks: a nonlinear panel data analysis. J Int Money Financ 36:68–85. https://doi.org/10.1016/j.jimonfin.2013.03.009
Liu CLT (2016) Insurance development, banking activities, and regional output: evidence from China. Empir Econ. https://doi.org/10.1007/s00181-016-1154-9
Liu GC, Lee CC (2014) Insurance activities and banking credit causal nexus: evidence from China. Appl Econ Lett 21:626–630. https://doi.org/10.1080/13504851.2013.879278
Liu G, He L, Yue Y, Wang J (2014) The linkage between insurance activity and banking credit: some evidence from dynamic analysis. North Am J Econ Financ 29:239–265. https://doi.org/10.1016/j.najef.2014.06.014
Loayza N, Rancière RG (2006) Financial development, financial fragility, and growth. J Money Credit Bank 38:1051–1076. https://doi.org/10.2139/ssrn.859565
Lorent B (2010) The link between insurance and banking sectors: an international cross-section analysis of life insurance demand. Working Papers CEB, 10
Maddala GS, Wu S (1999) A comparative study of unit root tests with panel data and a new simple test. Oxf Bull Econ Stat 61:631–652. https://doi.org/10.1111/1468-0084.0610s1631
Njegomir V, Stojić D (2012) Determinants of nonlife insurance market attractiveness for foreign investments: eastern European evidence. Econ Res 25:297–310
Outreville JF (1990) The economic significance of insurance markets in developing countries. J Risk Insur 57:487–498
Outreville JF (1996) Life insurance markets in developing countries. J Risk Insur 63:263–278
Outreville JF (2013) The relationship between insurance and economic development: 85 empirical papers for a review of the literature. Risk Manag Insur Rev 16(1):71–122
Pesaran MH (2004) General diagnostic tests for cross-section dependence in panels. Cambridge Working Papers in Economics No. 435, University of Cambridge, and CESifo Working Paper Series No. 1229
Pesaran MH (2007) A simple panel unit root test in the presence of cross-section dependance. J Appl Econ 22:265–312. https://doi.org/10.1002/jae
Pesaran MH, Shin Y, Smith RP (1999) Pooled mean group estimation of dynamic heterogeneous panels. J Am Stat Assoc 94:621–634
Rule D (2001) Risk transfer between banks, insurance companies and capital markets. Financ Stab Rev 11:127–159
Sawadogo R (2019) Insurance development and international trade in developing countries. Int Trade J 33:239–254. https://doi.org/10.1080/08853908.2018.1503574
Skipper HD (1997) Foreign insurers in emerging markets : issues and concerns. Central risk management insurance occasion paper 97
Skipper HD, Kwon JW (2007) Risk management and insurance: perspectives in a global economy. Blackwell Publishing, Oxford
Tennant D, Abdulkadri A (2010) Empirical exercises in estimating the effects of different types of financial institutions’ functioning on economic growth. Appl Econ 42:3913–3924
Ward D, Zurbruegg R (2000) Does insurance promote economic growth? Evidence from OECD countries. J Risk Insur 67:489–506
Ward D, Zurbruegg R (2002) Law, politics and life insurance consumption in asia. Geneva papers on risk and insurance. Geneva Pap Risk Insur 27:395–412
Webb I, Grace MF, Skipper HD (2005) The effect of banking and insurance on the growth of capital and output. SBS Rev Temas Financ 2:1–32
Zou H, Adams MB (2006) The corporate purchase of property insurance: Chinese evidence. J Financ Intermed 15:165–196. https://doi.org/10.1016/j.jfi.2004.06.007
Acknowledgements
The author is grateful to the editor and the anonymous referees for useful comments and suggestions on an earlier version of the paper.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The author has no conflict of interest.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Sawadogo, R. The relationship between insurance and banking sectors in Sub-Saharan African: Does globalization matter?. Econ Change Restruct 54, 101–119 (2021). https://doi.org/10.1007/s10644-020-09277-6
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10644-020-09277-6