Abstract
This study constructs a simple model demonstrate that life insurance and banking development simultaneously affect economic growth. We thereby provide empirical evidence on the model’s critical prediction. By analyzing a panel data for 17 advanced European countries from 1980 to 2015, the empirical results show that the influence of private credit on real economic growth is negative regardless of long- or short-run. The dark effect of finance-growth nexus may result from European countries having excessive financing. Financial crises occurred during our sample periods may also somewhat take responsibility for the negative findings. We find that increase the consumption of life insurance is a viable and long-term policy since life insurance penetration promotes long-run economic growth but does not obvious in the short term. Finally, life insurance development is a panacea in the finance-growth linkage since it not only helps moderate long-run real growth volatility but also absorbs the side effect of private credit on real growth.
Published Version
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