INSURANCE AND ECONOMIC DEVELOPMENT IN NIGERIA: CO-INTEGRATION AND CAUSALITY ANALYSIS

We examine the cointegration and causal relationship between insurance and economic development in Nigeria using time series data from 1990 – 2013. Gross domestic product (GDP) is adopted as a proxy for the level of economic development, while total life insurance premiums (TPL), total non-life insurance premiums (TPNL) and total insurance investment (TII) are used in measuring growth in the insurance sector. Data is operationalized through the stationarity test, cointegration test, regression analysis and granger causality tests. The stationarity test reveals that all-time series data are stationary at the 1%, 5% and 10% levels of significance. The test for cointegration shows that all cointegrate when GDP is the endogenous variable. The granger causality test reveals that there is a bidirectional relationship existing between GDP and total non-life insurance premiums while a unidirectional relationship exists between GDP and total life insurance premiums with no causal relationship existing between GDP and total insurance investments. An R-squared value of 0.9776 indicates that the independent variables account for 97.8% of the variations in GDP while the remaining 2.2% is attributable to influence of other variables or fators not in the scope of this study. We conclude that insurance not only contributes to economic development but also has a long term equilibrium relationship. Therefore, we recommend that insurance activities in the country should be encouraged to promote effectiveness and efficiency in order to enhance the long term relationship with economic development.