Insurance and economic growth in Ghana

Abstract

PurposeThe Ghanaian insurance industry has been transformed significantly from state-led to a market-driven one over the past decades. The empirical literature on the causal relationship between insurance and economic growth has been mixed, but little study on this has been done in Ghana. This study therefore empirically examines the effect of the growing insurance industry on the economic growth in Ghana.Design/methodology/approachQuantitative research design was deployed in the study. The study used Johansen–Juselius cointegration test and vector error correction model. The study deployed quarterly data from the first quarter of 2006 to the second quarter of 2018 sourced from the World Bank (World Development Indicators), National Insurance Commission, Ghana Statistical Service and Bank of Ghana.FindingsFindings revealed that there is a significant and positive short and long-run relationship between insurance and economic growth in Ghana, bidirectional causality between insurance and economic growth and also a long-run effect of innovations (shocks) in insurance on economic growth.Research limitations/implicationsOne of the limitations of the study is the unavailability of quarterly data of some of the variables.Practical implicationsThe study recommends the development and implementation of policies that promote an increase in coverage and access to insurance products to enhance economic growth.Originality/valueThe study finds a bidirectional causality running from insurance premium to economic growth and from economic growth to insurance which is consistent with the feedback hypothesis in the case of Ghana. Impulse response functions and the variance decompositions revealed that innovation (shock) in the insurance industry has a positive impact on economic growth.