Insurance Penetration and Inclusive Growth in Sub-Saharan Africa: Evidence from Panel Linear and Nonlinear Analysis

Abstract

This study contributes to the emerging literature on the insurance industry in sub-Saharan Africa by investigating both the linear and nonlinear relationship between insurance penetration and inclusive growth. We employ a panel dataset in a system generalised method of moments approach and a dynamic panel threshold to account for endogeneity and turning points in the insurance-inclusive growth nexus. The linear evidence suggests a significant positive impact of insurance penetration (life, nonlife and total) on inclusive growth. Further, there exists a significant threshold level of nonlife and total insurance penetration, which countries must surpass to realise the positive impact of insurance on inclusive growth. The paper argues that below this threshold value, the relationship tends to be negative, suggesting a U-shaped relationship. We found no significant threshold for the life insurance industry. Important policy implications for fine-tuning the insurance industry to deliver the intended effects of managing risk in the wider economy are discussed.