Using econometrics to understand the endogenous relationship between life ınsurance and economic growth

Abstract

The aim of this research is to analyze whether or not life insurance matters for economic growth taking into account the possible endogenous relationship between economic terms of interest. Research problem that is recognized based on research to date is low treatment of potential endogeneity problem between life insurance and economic growth.To fill in this gap in literature, balanced panel data for 94 countries during the period 1994-2013 are used in this analysis. The methodology used includes static panel data estimators. Hausman test is used to decide between fixed and random effects. Moreover, Maximum likelihood estimator is used to control for potential endogeneity issue. The obtained results indicate a significant positive impact of life insurance and human capital on economic growth. Inflation and government spending are reported to have negative impact while trade openness is not reported to have a significant impact on economic growth. The model that does not control for the potential endogeneity issue tends to underestimate the impact of life insurance on economic growth.Based on the obtained results, several useful insights are given especially for policy makers and researches. The paper suggests that, in order to enhance economic growth, the government should stimulate life insurance sector, educational attainment and trade openness while it should reduce government spending and inflation