Fiscal Policy And Insurance Growth In Africa.

Abstract

Most literature have established the existence or not of the relationship between insurance growth and economic growth. With some studies concluding that, whether or not economic growth causes insurance growth depends solely on the country under study and its prevailing economic conditions. Although in some countries, it has been established that economic growth does cause insurance growth, there may be specific factors within the economic growth that affect growth in the insurance sector as well. Amongst such determinants of economic growth are fiscal and monetary policy. This study examines the relationship between fiscal policy and insurance growth in Africa using panel data with a total of 30 African countries and a time interval of 20 years (thus from 1997 to 2017). The data for the study were obtained from the Global Financial Development Database and World Bank Development Indicators. The determinants of insurance growth in Africa are studied using a cointegration analysis. Investigation on a bi-causal relationship between fiscal policy and insurance growth is carried out using the Toda Yamamoto bi-causality test procedure. The results suggest that there is a long run relationship between insurance penetration (whether life or non-life), government expenditure, gross domestic product (GDP) growth, life expectancy, population growth and inflation. Also, the results of the bi-causality test show that insurance growth; measured by insurance penetration causes government expenditure but government expenditure does not cause insurance growth. The study informs policy makers in the African countries under study on the direction in which fiscal policy should go in order to enhance the growth of the insurance sector in these countries. Keywords and phrases: government expenditure, fiscal policy, life insurance penetration, non-life insurance penetration tax revenue, Toda-Yamamoto bi-causality