English

Hui Zheng,Xin Zhao

doi:10.5897/ajbm2016.8219

Abstract

Insurance was widely recognized as a useful tool for risk management in regional economic growth. Lots of analysis focused on building a fixed functional relationship between insurance development and economic growth. However, the effects of this mechanism varied widely across countries. And there was a clear gap in the understanding of how this mechanism works in coastal areas, the forward position of one country. Could it be reflected by fixed function or a more complex one? The answer was crucial to realize the harmonious development, especially for China, the most important emerging economy. This study assessed China's 11 coastal cities, focusing on the dynamic linkages between insurance development and economic growth. Non-parametric local polynomial regression was used to obtain the change between insurance development and economic growth, and fit the curve relationship between insurance density per capita GDP, with the purpose of gaining the suitable function model. The result demonstrated that it was certain that insurance growth had a positive effect on the economic development of the coastal area, and the law of diminishing marginal returns held in most cases. We further classified research into three parts the Northern, Eastern and Southern coastal areas (China's administrative division), and found that, there were obvious differences in output efficiency and marginal revenue among the three regions. This relationship in the Northern and Southern area was stable, but the curve changed complicatedly in the Eastern area. So fixed function was not qualified to describe the linkage between insurance development and economic growth in China's coastal areas. Those conclusions offered several countermeasures for policy-makers and researchers. Key words: Coastal regions, insurance density, economic growth, non-parameter local polynomial model.

Highlights

The relationship between insurance development and economic growth has gained more attention during the past few decades because of the rapid expansion of the insurance industry
As the importance of the insurance industry’s significance in loss compensation, financial intermediation and risk management for emerging markets began to be realized, more researchers have become involved in the study of the influence of the development of insurance market on economic growth (Webb et al, 2002; Liedtke, 2007; Roe and Siegel, 2011), while little is known about this mechanism between insurance development and economy growth in China
Considering that there is a large discrepancy in the size of population and the economic foundations of each city, we utilized insurance penetration and insurance density in analyzing the data property, while only deployed insurance density to verify the dynamic relationship between insurance market development and economic growth

Summary

Introduction

The relationship between insurance development and economic growth has gained more attention during the past few decades because of the rapid expansion of the insurance industry. For the period 1985 to 2007, the world's total real insurance premiums had increased by approximately 5.5 times from US$0.63 trillion to US$4.13 trillion (Chiu and Lee, 2012), with an insurance premiums growth rate of 57% in developed countries. Studies examining the insurance-growth nexus have been primarily based on data from developed economies (Lee et al, 2011; Billio et al, 2012; Law et al, 2014). With the further implementation of China's strategy of building an ocean power, coastal regions played important role in regional economic development by virtue of the special geographical conditions. Examining the role of insurance industry in economy and investigating the changes of the linkages between insurance development, and economy growth was vital to promote China's marine economy fast and healthy developing

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