Hostname: page-component-cd9895bd7-lnqnp Total loading time: 0 Render date: 2024-12-26T17:14:39.694Z Has data issue: false hasContentIssue false
  • English
  • Français

INSURANCE AND REAL OUTPUT: THE KEY ROLE OF BANKING ACTIVITIES

Published online by Cambridge University Press:  04 November 2011

Chien-Chiang Lee
Chien-Chiang Lee*
Affiliation:
National Sun Yat-sen University
*
Address correspondence to: Chien-Chiang Lee, Department of Finance, National Sun Yat-sen University, Kaohsiung, Taiwan; e-mail: cclee@cm.nsysu.edu.tw.
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper applies panel cointegration tests and panel vector error correction models for 17 OECD countries and considers cross-sectional dependence and structural breaks to investigate the interrelationship between an insurance market's development and real output, controlling for banking activities. We first obtain evidence of a fairly strong long-run equilibrium relationship among them. Second, we find that insurance market development has positive effects on real output and that banking activities have an unfavorable, if not negative, effect on real output. In fact, insurance market activity is much more productive than banking sector activity. Finally, there exists bidirectional causality between insurance premiums and economic growth in the long run, suggesting the existence of the feedback hypothesis for the insurance–output nexus.

Keywords

Insurance PremiumsBankingReal OutputPanel CointegrationCross-Sectional DependenceStructural BreaksPanel Causality
Type
Articles
Information
Macroeconomic Dynamics , Volume 17 , Issue 2 , March 2013 , pp. 235 - 260
Copyright
Copyright © Cambridge University Press 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Adams, M., Andersson, J., Andersson, L., and Lindmark, M. (2009) The historical relation between commercial banking, insurance, and economic growth in Sweden between 1830 and 1998: An exploratory analysis. Accounting Business and Financial History 19 (1), 21–38.CrossRefGoogle Scholar
Afonso, A. and Rault, C. (2010) What do we really know about fiscal sustainability in the EU? A panel data diagnostic. Review of World Economics 145, 731–755.CrossRefGoogle Scholar
Arellano, M. and Bond, S.R. (1991) Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies 58, 277–297.CrossRefGoogle Scholar
Arestis, P., Demetriades, P.O., and Luintel, B. (2001) Financial development and economic growth: The role of stock markets. Journal of Money, Credit and Banking 33 (1), 16–41.CrossRefGoogle Scholar
Bai, J. and Perron, P. (2003) Critical values for multiple structural change tests. Econometrics Journal 6 (1), 72–78.CrossRefGoogle Scholar
Banerjee, A. and Carrion-i-Silvestre, J.L. (2006) Cointegration in Panel Data with Breaks and Cross-Section Dependence. ECB working paper 591.CrossRefGoogle Scholar
Banerjee, A., Marcellino, M., and Masten, I. (2005) Leading indicators for euro-area inflation and GDP growth. Oxford Bulletin of Economics and Statistics 67, 785–813.CrossRefGoogle Scholar
Banerjee, A. and Wagner, M. (2009) Panel methods to test for unit roots and cointegration. In Mills, T.C. and Patterson, K. (eds.), Palgrave Handbook of Econometrics, Vol. 2, pp. 632–726. Palgrave Macmillan.CrossRefGoogle Scholar
Brainard, L. (2008) What Is the Role of Insurance in Economic Development? Zurich Financial Services. http://zdownload.zurich.com/main/reports/What_is_the_role_of_economic_developement.pdf.Google Scholar
Breitung, J. (2000) The local power of some unit root tests for panel data. In Baltagi, B. (ed.), Nonstationary Panels, Panel Cointegration, and Dynamic Panels, Advances in Econometrics, vol. 15, pp. 161–178. Emerald Group Publishing.CrossRefGoogle Scholar
Breitung, J. and Pesaran, M.H. (2008) Unit root and cointegration in panel. In Mátyás, L. and Sevestre, P. (eds), The Econometrics of Panel Data: Fundamentals and Recent Developments in Theory and Practice, pp. 279–322. Kluwer Academic Publishers.CrossRefGoogle Scholar
Campbell, J.Y. and Perron, P. (1991) Pitfalls and opportunities: What macroeconomists should know about unit roots. In NBER Macroeconomics Annual, Vol. 6, pp. 141–220. NBER.CrossRefGoogle Scholar
Canning, D. and Pedroni, P. (2008) Infrastructure, long-run economic growth and causality tests for cointegrated panels. The Manchester School 76, 504–527.CrossRefGoogle Scholar
Chen, P.-F., Lee, C.-C., and Lee, C.-F. (in press) How does the development of the life insurance market affect economic growth? Some international evidence. Journal of International Development.Google Scholar
Christopoulos, D.K. and Tsionas, E.G. (2004) Financial development and economic growth: Evidence from panel unit root and cointegration tests. Journal of Development Economics 73, 55–74.CrossRefGoogle Scholar
Contador, C.R. and Ferraz, C.B. (2007) Insurance and economic growth: Some international evidences. RBRSi, Rio de Janeiro, Brazil 1 (1), 41–78.Google Scholar
Edison, H., Klein, M., Ricci, L., and Sløk, T. (2002) Capital Account Liberalization and Economic Performance: Survey and Synthesis. IMF Working papers 02/120, pp. 1–39.CrossRefGoogle Scholar
Engle, R.F. and Granger, G.W. (1987) Co-integration and error correction: Representation, estimation, and testing. Econometrica 55 (2), 251–276.CrossRefGoogle Scholar
Grace, M.F. and Rebello, M.J. (1993) Financing and the demand for corporate insurance. Geneva Papers on Risk and Insurance Theory 18 (2), 147–172.CrossRefGoogle Scholar
Hadri, K. (2000) Testing for stationarity in heterogeneous panel data. Econometrics Journal 3 (2), 148–161.CrossRefGoogle Scholar
Haiss, P. and Sümegi, K. (2008) The relationship of insurance and economic growth in Europe–-A theoretical and empirical analysis. Empirica 35 (4), 405–431.CrossRefGoogle Scholar
Hartung, J. (1999) A note on combining dependent tests of significance. Biometrical Journal 41, 849–855.3.0.CO;2-T>CrossRefGoogle Scholar
Im, K.S., Pesaran, M.H., and Shin, Y. (2003) Testing for unit roots in heterogeneous panels. Journal of Econometrics 115, 53–74.CrossRefGoogle Scholar
Impavido, G., Musalem, A.R., and Tressel, T. (2003) The Impact of Contractual Savings Institutions on Securities Markets. World Bank Policy Research Working paper 2498.CrossRefGoogle Scholar
Johansen, S. (1988) Statistical analysis of cointegration vectors. Journal of Economics and Control 12, 231–254.CrossRefGoogle Scholar
Kao, C. (1999) Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics 90, 1–44.CrossRefGoogle Scholar
Kao, C. and Chiang, M.H. (2000) On the estimation and inference of a cointegrated regression in panel data. Advances in Econometrics 15, 179–222.CrossRefGoogle Scholar
Khan, M. and Senhadji, A. (2003) Financial development and economic growth: A review and new evidence. Journal of African Economies 12 (2), 89–110.CrossRefGoogle Scholar
King, R.G. and Levine, R. (1993) Finance and growth: Schumpeter might be right. Quarterly Journal of Economics 108 (3), 717–737.CrossRefGoogle Scholar
Kugler, M. and Ofoghi, R. (2005) Does Insurance Promote Economic Growth? Evidence from the UK. Presented at Money Macro and Finance (MMF) Research Group Conference 8.Google Scholar
Lee, C.-C. (2011) Does insurance matter for growth: Empirical evidence from OECD countries. The B.E. Journal of Macroeconomics 11 (1), Article 18.CrossRefGoogle Scholar
Leng, C.C., Powers, M.R., and Venezian, E.C. (2002) Did regulation break competitiveness in property-liability insurance? Evidence from underwriting profit and investment income. Journal of Insurance Regulation 21, 57–77.Google Scholar
Levin, A., Lin, C.-F., and Chu, C.-S. (2002) Unit root tests in panel data: Asymptotic and finite sample properties. Journal of Econometrics 108, 1–24.CrossRefGoogle Scholar
Levine, R. (2002) Bank-based or market-based financial systems: Which is better? Journal of Intermediation 11, 1–30.Google Scholar
Levine, R., Loayza, N. and Beck, T. (2000) Financial intermediation and growth: Causality and causes. Journal of Monetary Economics 46, 31–77.CrossRefGoogle Scholar
Maddala, G.S. and Wu, S. (1999) A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics 61 (4), 631–652.CrossRefGoogle Scholar
McCoskey, S. and Kao, C. (1998) A Residual-based test of the null of cointegration in panel data. Econometric Reviews 17, 57–84.CrossRefGoogle Scholar
Meier, U.B. (2006) Multi-national underwriting cycles in property-liability insurance. The Journal of Risk Finance 7, 64–82.CrossRefGoogle Scholar
Pedroni, P. (1999) Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and Statistics 61, 653–670.CrossRefGoogle Scholar
Pedroni, P. (2004) Panel cointegration: Asymptotics and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory 20, 597–625.CrossRefGoogle Scholar
Pesaran, M.H. (2004) General Diagnostic Tests for Cross Section Dependence in Panels. IZA Discussion Papers 1240.CrossRefGoogle Scholar
Pesaran, M.H. (2007) A simple panel unit root test in the presence of cross-section dependence. Journal of Applied Econometrics 22 (2), 265–312.CrossRefGoogle Scholar
Pesaran, M.H., Shin, Y., and Smith, R.P. (1999) Pooled mean group estimation of dynamic heterogeneous panels. Journal of American Statistical Association 94, 621–634.CrossRefGoogle Scholar
Rousseau, P.L. and Wachtel, P. (1998) Financial intermediation and economic performance: Historical evidence from five industrialized countries. Journal of Money, Credit and Banking 30, 658–678.CrossRefGoogle Scholar
Rule, D. (2001) Risk transfer between banks, insurance companies and capital markets. Financial Stability Review 11, 127–159.Google Scholar
Shen, C.-H. and Lee, C.-C. (2006) Same financial development yet different economic growth–-Why? Journal of Money, Credit and Banking 38 (7), 1907–1944.CrossRefGoogle Scholar
Sümegi, K. and Haiss, P. (2008) The relationship between insurance and economic growth: Review and agenda. The Icfai Journal of Risk and Insurance 2, 32–56.Google Scholar
Swiss Re (various years) Sigma. Zurich: Swiss Reinsurance Company.Google Scholar
Ward, D. and Zurbruegg, R. (2000) Does insurance promote economic growth? Evidence from OECD countries. Journal of Risk and Insurance 67, 489–506.CrossRefGoogle Scholar
WDI (2007) World Development Indicators. World Development Report, World Bank, Washington, DC.Google Scholar
Webb, I.P., Grace, M.F., and Skipper, H.D. (2002) The Effect of Banking and Insurance on the Growth of Capital and Output. Center for Risk Management and Insurance working paper 02–1. Available at http://rmictr.gsu.edu/working.htm.Google Scholar
Westerlund, J. (2006) Testing for panel cointegration with multiple structural breaks. Oxford Bulletin of Economics and Statistics 68, 101–132.CrossRefGoogle Scholar
Westerlund, J. (2007) Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics 69, 709–748.CrossRefGoogle Scholar
Westerlund, J. (2008) Panel cointegration tests of the fisher effect. Journal of Applied Econometrics 23, 193–233.CrossRefGoogle Scholar
Westerlund, J. and Costantini, M. (2009) Panel cointegration and the neutrality of money. Empirical Economics 36, 1–26.CrossRefGoogle Scholar
Westerlund, J. and Edgerton, D. (2007) A panel bootstrap cointegration test. Economics Letters 97, 185–190.CrossRefGoogle Scholar
Westerlund, J. and Edgerton, D. (2008) A simple test for cointegration in dependent panels with structural breaks. Oxford Bulletin of Economics and Statistics 70, 665–704.CrossRefGoogle Scholar