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Does life insurance activity promote economic development in India: an empirical analysis

Does life insurance activity promote economic development in India: an empirical analysis Purpose – The role of financial institutions and financial intermediaries in fostering the economic growth by improving the efficiency of capital accumulation, encouraging savings and ultimately improving the productivity of the economy has been well accepted by now. Recent studies show that the insurance industry can improve the economic growth through financial intermediation, risk aversion and generating employment. This study aims to find the relationship between life insurance industry and economic development in India. Design/methodology/approach – The study uses the VAR‐VECM model to find out the long run and short run relationship (if any) between life insurance growth and economic growth along with Granger causality test to suggest any causal relationship. Findings – This study finds that there is long term relationship between life insurance industry and economic development in India. And the Granger causality test suggests that life insurance sector improves the overall economic development in India and the reverse is not significant. Research limitations/implications – The only limitation to study the relationship between life insurance sector development and economic development is the data set which has been used is annual data as the quarterly data were not available for insurance industry. Practical implications – The study documented the long run relationship between life insurance industry and economic development in India and finds that the life insurance sector improves the overall economic development in India. This would help us to understand the implications of the life insurance market development in the post reform era. Originality/value – There is a dearth of literature on the Indian economy in relation to the insurance sector, specifically the life insurance sector. This is the first attempt to study the impact of life insurance development on Indian economy after the reforms initiated in the insurance sector. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Asia Business Studies Emerald Publishing

Does life insurance activity promote economic development in India: an empirical analysis

Journal of Asia Business Studies , Volume 7 (1): 13 – Jan 11, 2013

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Publisher
Emerald Publishing
Copyright
Copyright © 2013 Emerald Group Publishing Limited. All rights reserved.
ISSN
1558-7894
DOI
10.1108/15587891311301007
Publisher site
See Article on Publisher Site

Abstract

Purpose – The role of financial institutions and financial intermediaries in fostering the economic growth by improving the efficiency of capital accumulation, encouraging savings and ultimately improving the productivity of the economy has been well accepted by now. Recent studies show that the insurance industry can improve the economic growth through financial intermediation, risk aversion and generating employment. This study aims to find the relationship between life insurance industry and economic development in India. Design/methodology/approach – The study uses the VAR‐VECM model to find out the long run and short run relationship (if any) between life insurance growth and economic growth along with Granger causality test to suggest any causal relationship. Findings – This study finds that there is long term relationship between life insurance industry and economic development in India. And the Granger causality test suggests that life insurance sector improves the overall economic development in India and the reverse is not significant. Research limitations/implications – The only limitation to study the relationship between life insurance sector development and economic development is the data set which has been used is annual data as the quarterly data were not available for insurance industry. Practical implications – The study documented the long run relationship between life insurance industry and economic development in India and finds that the life insurance sector improves the overall economic development in India. This would help us to understand the implications of the life insurance market development in the post reform era. Originality/value – There is a dearth of literature on the Indian economy in relation to the insurance sector, specifically the life insurance sector. This is the first attempt to study the impact of life insurance development on Indian economy after the reforms initiated in the insurance sector.

Journal

Journal of Asia Business StudiesEmerald Publishing

Published: Jan 11, 2013

Keywords: Life insurance; Economic development; VAR; VECM; Indian life insurance; Granger causality; India

References