Abstract
This study examines the effects of insurance activity on per capita income in the case of a southern Mediterranean country (Jordan) over the period 1990-2017 using an Autoregressive Distributed Lag (ARDL) cointegration analysis to describe the dynamic long relationship between per capita income and insurance activity. It provides empirical evidence that insurance sector activity, measured by insurance investment, had a negative and significant effect on per capita income in Jordan during the studied period. However, it was also found that the negative effects of insurance sector activity on growth were limited by other economic policies which hamper per capita growth, such as inflation. The study recommends that more diversification of insurance products is necessary and that new markets need to be explored in order for insurance companies in southern Mediterranean countries to compete in international markets. Although there are several agreements between Mediterranean countries, negotiations on minimizing restrictions on insurance company activities could be done through easing procedures, reducing costs and enhancing future economic relations by exploring new economic relations or by building on current protocol and trade agreements. Furthermore, the study notes that policymakers in southern Mediterranean countries must aim for a well-developed insurance sector so that its activity can contribute to economic growth through mobilizing national saving to finance long-term investment projects. More attention should be paid throughout the region to insurance sector activities while conducting financial sector analysis and macroeconomic policy design.
Highlights
The insurance sector plays a vital role in the economy, as insurance companies are large investors and their activities can be affected by interest rates and risk assets
This study examines the effects of insurance activity on per capita income in the case of a southern Mediterranean country (Jordan) over the period 1990-2017 using an Autoregressive Distributed Lag (ARDL) cointegration analysis to describe the dynamic long relationship between per capita income and insurance activity
The study notes that policymakers in southern Mediterranean countries must aim for a well-developed insurance sector so that its activity can contribute to economic growth through mobilizing national saving to finance long-term investment projects
Summary
The insurance sector plays a vital role in the economy, as insurance companies are large investors and their activities can be affected by interest rates and risk assets. It is notable that insurance actors around the world share the objective of helping to achieve sustainable economic growth. This is true for advanced economies, where the insurance sector is more significant than in less developed economies such as those in Mediterranean countries. Insurance sector activities influence economic growth by mobilizing savings through the accumulation of capital, transforming risk and reducing losses, efficiently allocating resources and capital in the economy, and increasing investment [5] [6] [7]. There is a distinct difference between the ways in which life insurance and non-life insurance impact accumulation of capital and investment: generally speaking, life insurance activity mobilizes capital and encourages long-term investments while non-life insurance activity results in short-term investments [8]
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