Economic Growth and the Insurance Sector in South Africa: Toda-Yamamoto

Abstract

Abstract. Introduction. The connection between the real economy and the financial sector continues to be a subject of debate amongst scholars. There is a plethora of studies dedicated to unravelling the relationship between economic activity and financial progress. However, a large share of those studies has concentrated on banking and the capital market industries; the studies that have undertaken to decipher the connection between the insurance industry and prosperity in the economy are insufficient. Purpose. This study attempts to explore the link between South Africa's insurance industry and economic growth. The study made use of secondary time-series quarterly data and employed the Toda-Yamamoto (non-Granger causality) test. Results. Firstly, the findings show a uni-directional causal relationship running from long-term insurance to GDP percapita. Implying that the South African long-term insurance sector is supply-leading. Secondly, the results revealed that GDP percapita and the short-term insurance sector are interdependent (bi-directional relationship). Lastly, the findings showed a unidirectional causal relationship between GDP per-capita and total insurance assets. Conclusions. The results imply that the South African total insurance sector is supply-leading.