INSURANCE AND REAL OUTPUT: THE KEY ROLE OF BANKING ACTIVITIES

Chien‐Chiang Lee

83 citations0/0 files storedMacroeconomic Dynamics

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Insurance and Financial Risk Management Monetary Policy and Economic Impact Banking stability, regulation, efficiency

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.

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References

1991Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations 1987Co-Integration and Error Correction: Representation, Estimation, and Testing 1988Statistical analysis of cointegration vectors 2003Testing for unit roots in heterogeneous panels 2002Unit root tests in panel data: asymptotic and finite-sample properties 2007A simple panel unit root test in the presence of cross‐section dependence 2004General Diagnostic Tests for Cross Section Dependence in Panels 1993Finance and Growth: Schumpeter Might Be Right

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2017Analysing the determinants of insolvency risk for general insurance firms in the UK 2013Dynamic relationships between industry returns and stock market returns 2018Impact of banking sector development on insurance market-growth nexus: the study of Eurozone countries

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