Long-Run Cointegration Between Insurance Market Development and Economic Growth in Nigeria

This study examines the long-run cointegration relationship and causal dynamics between insurance market development and economic growth in Nigeria using annual time series data from 1990 to 2023. The finance-growth nexus literature increasingly recognizes insurance as a distinct financial intermediary whose risk transfer and savings mobilization functions contribute independently to economic growth. However, evidence from Nigeria is mixed, partly reflecting data limitations and differing methodological approaches. This study uses total insurance premium income as a ratio of GDP, life insurance density, and non-life insurance density as insurance development measures, with real GDP per capita and private sector credit as economic variables. The autoregressive distributed lag bounds testing approach and the fully modified OLS estimator are applied to test for long-run cointegration and estimate long-run elasticities. Toda-Yamamoto Granger causality tests assess directional relationships. Results establish a significant long-run cointegrating relationship between total insurance market development and economic growth, with a 1 percent increase in insurance penetration associated with a 0.43 percent increase in real per capita income in the long run. Non-life insurance development shows stronger and more immediate growth effects than life insurance, consistent with its business facilitation role. Unidirectional Granger causality from economic growth to insurance development is established, supporting a demand-following hypothesis. The study contributes updated cointegration evidence and recommends supply-side insurance market development policies to break the demand constraint.

Keywords: insurance market development, economic growth, cointegration, ARDL, Nigeria.