The relationship between insurance and banking sectors in Sub-Saharan African: Does globalization matter?

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, access via your institution.

Notes

  1. 1.

    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.

  2. 2.

    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

  1. 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

    Article  Google Scholar 

  2. 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

    Article  Google Scholar 

  3. Beck T, Webb I (2003) Economic, demographic, and institutional determinants of life insurance consumption across countries. World Bank Econ Rev 17:51–88

    Article  Google Scholar 

  4. 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

    Article  Google Scholar 

  5. Browne MJ, Kim K (1993) An international analysis of life insurance demand. J Risk Insur 60:616–634

    Article  Google Scholar 

  6. 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

    Article  Google Scholar 

  7. 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

    Article  Google Scholar 

  8. 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

  9. Dickinson G (1998) The economic role of the insurance sector in the risk transfer-capital market nexus. Geneva Pap Risk Insur 23:519–529

    Article  Google Scholar 

  10. 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

    Google Scholar 

  11. 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

    Article  Google Scholar 

  12. 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

  13. Grace MF, Rebello MJ (1993) Financing and the demand for corporate insurance. Geneva Pap Risk Insur Theory 18:147–172

    Article  Google Scholar 

  14. Gygli S, Haelg F, Sturm JE (2018) The KOF globalization index-revisited. KOF Working Papers, 439

  15. Haiss P, Sümegi K (2008) The relationship between insurance and economic growth in Europe: a theoretical and empirical analysis. Empirica 35:405–431

    Article  Google Scholar 

  16. 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

    Article  Google Scholar 

  17. Im KS, Pesaran MH, Shin Y (1997) Testing for unit roots in heterogeneous panels. University of Cambridge, Cambridge

    Google Scholar 

  18. 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

    Article  Google Scholar 

  19. Kugler M, Ofoghi R (2005) Does insurance promote economic growth? Evidence from the UK. Workin paper in University of Southampt

  20. Lee CC (2013) Insurance and real output: the key role of banking activities. Macroecon Dyn 17:235–260. https://doi.org/10.1017/S1365100511000101

    Article  Google Scholar 

  21. 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

    Article  Google Scholar 

  22. 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

    Article  Google Scholar 

  23. 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

    Article  Google Scholar 

  24. Liu CLT (2016) Insurance development, banking activities, and regional output: evidence from China. Empir Econ. https://doi.org/10.1007/s00181-016-1154-9

    Article  Google Scholar 

  25. 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

    Article  Google Scholar 

  26. 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

    Article  Google Scholar 

  27. 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

    Article  Google Scholar 

  28. Lorent B (2010) The link between insurance and banking sectors: an international cross-section analysis of life insurance demand. Working Papers CEB, 10

  29. 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

    Article  Google Scholar 

  30. Njegomir V, Stojić D (2012) Determinants of nonlife insurance market attractiveness for foreign investments: eastern European evidence. Econ Res 25:297–310

    Google Scholar 

  31. Outreville JF (1990) The economic significance of insurance markets in developing countries. J Risk Insur 57:487–498

    Article  Google Scholar 

  32. Outreville JF (1996) Life insurance markets in developing countries. J Risk Insur 63:263–278

    Article  Google Scholar 

  33. 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

    Article  Google Scholar 

  34. 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

  35. 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

    Article  Google Scholar 

  36. Pesaran MH, Shin Y, Smith RP (1999) Pooled mean group estimation of dynamic heterogeneous panels. J Am Stat Assoc 94:621–634

    Article  Google Scholar 

  37. Rule D (2001) Risk transfer between banks, insurance companies and capital markets. Financ Stab Rev 11:127–159

    Google Scholar 

  38. 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

    Article  Google Scholar 

  39. Skipper HD (1997) Foreign insurers in emerging markets : issues and concerns. Central risk management insurance occasion paper 97

  40. Skipper HD, Kwon JW (2007) Risk management and insurance: perspectives in a global economy. Blackwell Publishing, Oxford

    Google Scholar 

  41. 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

    Article  Google Scholar 

  42. Ward D, Zurbruegg R (2000) Does insurance promote economic growth? Evidence from OECD countries. J Risk Insur 67:489–506

    Article  Google Scholar 

  43. 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

    Article  Google Scholar 

  44. 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

    Google Scholar 

  45. 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

    Article  Google Scholar 

Download references

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

Affiliations

Authors

Corresponding author

Correspondence to Relwendé Sawadogo.

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.

Appendix

Appendix

See Tables 5, 6, 7 and 8.

Table 5 In sample descriptive statistics
Table 6 In-sample correlations
Table 7 Banking credit on insurance (life, non-life insurance and total insurance) development
Table 8 Conditional effects of banking activity on insurance development

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

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

Download citation

Keywords

  • Insurance activity
  • Banking credit
  • Globalization
  • Pooled mean group estimator
  • Sub-Saharan African

JEL Classification

  • C23
  • E51
  • G21
  • G22