Insurance sector development and economic growth in Nigeria

Abstract

This article examined the short and long-run relationships between economic growth and insurance sector development in the Nigerian economy. The fixed-effect model was adopted and relevant data within the period of 1985 and 2009 were collated and analysed with the use of co-integration analysis. Gross domestic product (GDP) was adopted as a proxy for the level of economic growth, while numbers of insurance companies (NIC), premium of life-insurance (PLI), premium of non-life insurance (NLP), total insurance investment (TII), and inflation rate (INF) were used in measuring insurance sector growth. The findings revealed that insurance sector growth and development positively and significantly affects economic growth. The coefficient of multiple determinations denoted as R2 with a value of 0.87 showed that about 87% variation in the dependent variable was explained by the explanatory variables while the remaining 13% was explained by the stochastic variables. The result of the Granger causality test also revealed that the extent of influence the insurance sector growth had on economic growth was limited and not direct because of some cultural, attitudinal traits and values in the country. It was recommended that government should create a good environment for insurance activities in Nigeria. The insurance companies should also engage in insurance business that is environment and customer friendly, as well as, formulating insurance policies that can accommodate every sector and segment of the economy. Key words: Insurance, economic growth, fixed-effect model, Granger-causality test, co-integration.