Insurance Penetration, Financial Deepening, and Long-Run Economic Growth in Nigeria: A Structural Analysis

This dissertation provides a structural analysis of the long-run causal relationships between insurance sector development, financial deepening, and economic growth in Nigeria using data spanning 1986 to 2023. The finance-growth nexus literature has extensively examined the growth effects of banking sector development, but the distinct contribution of insurance sector development has received comparatively limited empirical investigation in the Nigerian context, despite strong theoretical arguments for insurance's growth-enhancing role through risk pooling, long-term savings mobilization, and capital market deepening. This study employs a structural vector autoregression (SVAR) model incorporating insurance penetration, insurance density, banking sector credit to private sector, stock market capitalization, and real GDP per capita growth as endogenous variables. The SVAR identification strategy uses sign restrictions informed by theoretical predictions from insurance economics and financial intermediation theory. Forecast error variance decompositions quantify each variable's contribution to growth variation over short, medium, and long-run horizons. A novel Financial-Insurance Deepening Index (FIDI) is constructed and its growth effects are compared to the effect of banking development alone. Threshold cointegration analysis tests whether the insurance-growth relationship exhibits regime dependence around insurance penetration threshold levels. Preliminary findings are expected to support insurance-led growth hypotheses over medium and long horizons with evidence of complementarity rather than substitution with banking sector development. Keywords: Insurance Penetration, Financial Deepening, Economic Growth, SVAR, Nigeria.