The Nexus between Insurance and Economic Growth of Tanzania: Autoregressive Distributed Lag Bounds Cointegration Approach

Abstract

The main objective of this study was to examine the relationship between insurance (proxied by insurance penetration) and economic growth in Tanzania. The study employed the annual time series data covering the period from 1995 to 2021 based on 33 registered insurance companies. The autoregressive distributed lag (ARDL) bounds approach to cointegration was employed to test the nexus between insurance and economic growth among the variables of interest based on the conventional error correction model. Granger causality was also employed to test the direction of causality among the variables under study. However, neither demand-following nor supply-leading hypothesis was found to be valid. The evidence of insignificant relationship between insurance and economic growth in Tanzania indicates a low insurance activities and economic development in Tanzania. The possible reason for this explanation perhaps could be that the insurance sector is not fully capture untapped potentials in the market. Thus, the study recommends the fully embracing of insurance activities in order to promote economic growth. Life insurance penetration indicated to be significant in the short-run. the results imply that savings mobilization, which is the main function of life insurance, is significant aspect in insurance development in Tanzania. Hence, as a country, efforts should be made to encourage investment in life insurance.