Regression and Causality Analyses of Insurance and Economic Growth Nexus in Nigeria (1981-2012)

Abstract

This paper investigated the linear and causal relationships between insurance sector activity and economic growth in Nigeria based on annual data for the period 1981-2012 using Augumented  Dickey Fuller test, Phillips-Perron test, Johansen Cointegration test, Pairwise Causality test and Ordinary Least Square Regression Analysis via Microsoft 7.1 econometric software. The overall results show that insurance sector activity exerts a statistically significant positive relationship with economic growth in Nigeria. A one unit increase in insurance consumption (CINSS) would bring about 31.79 units rise in real gross domestic product (RGDP). The causality test conducted revealed that there is a bidirectional causal relationship between insurance sector activity and economic growth. This implies that insurance sector activity granger caused economic growth, and also economic growth granger caused insurance sector activity. Based on the estimated results, government at all levels should provide enabling environment for insurance sector to develop because of the sector’s capability to absorb risks of other sectors; and there should be substantial investment on infrastructural development by government at various levels to attract both domestic and foreign investments which can spur economic growth and provide market for insurance services in the economy. In addition, incentives should be given to potential industrialists both local and foreign inform of favorable fiscal policy in order to encourage them to establish various types of industries that would increase  economic growth and create demand for insurance services.

Keywords: Insurance sector, economic growth, regression analysis, causality test, unit root, cointegration, Nigeria