Does life insurance activity promote economic development in India: an empirical analysis
| Published date | 11 January 2013 |
| DOI | https://doi.org/10.1108/15587891311301007 |
| Pages | 31-43 |
| Date | 11 January 2013 |
| Author | Amlan Ghosh |
| Subject Matter | Strategy |
Does life insurance activity promote
economic development in India:
an empirical analysis
Amlan Ghosh
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 insurancesector. This is the first attempt to study the impact of life insurance
development on Indian economy after the reforms initiated in the insurance sector.
Keywords Life insurance, Economic development, VAR,VECM, Indian life insurance, Granger causality,
India
Paper type Research paper
Introduction
The role of financial development and economic growth has been well established by the
researchers and economic analysts in their empirical studies (Levine and Zervos, 1998;
Levine, 1990; King and Levine, 1993a, b; Levine et al., 2000; Beck et al., 2000). These
studies established 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. Now the research has
shifted from established link between financial development and economic growth to
understand factors that affects the overall financial services, thereby the underlying factors
that lead to improve the financial development.
Insurance is one of the important financial services that can trigger the growth in an economy
by channelizing the long-term savings for the productive purpose and providing a shield
before the risk associated with any activity related to productivity, assets or life. By
DOI 10.1108/15587891311301007 VOL. 7 NO. 1 2013, pp. 31-43, QEmerald Group Publishing Limited, ISSN 1558-7894
j
JOURNAL OF ASIA BUSINESS STUDIES
j
PAGE 31
Amlan Ghosh is based at
IBS Hyderabad,
Hyderabad, India.
The author wishes to express
his sincere thanks to Professor
Meenakshi Rajeev, Institute of
Social and Economic Change,
Bangalore, India along with all
the participants present at the
International Conference on
‘‘Financial Sector Reforms and
the Indian Economy’’ organized
by the Indian Institute of
Management Kozhikode in
association with the British
Northern Universities Forum
(BNUIF), for their valuable
comments and suggestions.
The author is also grateful to Dr
Arif Khurshed, Manchester
Business School, UK for his
guidance in finalizing this
manuscript. Usual disclaimer
applies.
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