The Relationship Between the Insurance Sector and Economic Growth in Saudi Arabia from 1992 to 2017 - An Empirical Analysis

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The insurance sector is one of the most fundamental aspects of financial services. It achieves economic stability through proactive risk management and the effective allocation of domestic resources. Saudi Arabia is among the top 20 countries in the world in terms of its economy; thus, it has a significant impact on the world’s economy. However, to date, there have been no empirical studies specifically investigating the relationship between the insurance sector and economic growth in Saudi Arabia. This study examines the relationship between the insurance sector and economic growth in Saudi Arabia from 1992 to 2017. It aims to answer three main questions: 1) How is the insurance sector in Saudi Arabia associated with economic growth? 2) Does the insurance sector help predict economic growth and vice versa ? 3) What is the relationship among life insurance (LI) penetration, non-life insurance (NLI) penetration, and economic growth in the short and long term? Three main variables—LI, NLI and gross domestic product (GDP) per capita growth rate—were measured using Spearman’s correlation coefficient test, the nonlinear Granger causality test and the cointegration of nonlinear autoregressive distributed lag(NARDL)-bound test. Augmented Dicky–Fuller generalized least square (ADF-GLS) unit root test conducted on the specified time series showed that GDP is integrated at level I(0) while LI /NLI were integrated of order one I(1). The data on LI penetration and NLI penetration were obtained from the Global Economy website, while GDP per capita growth rate data were collected from the World Bank website. The results of the non-linear Granger causality test revealed no bi-directional causality between GDP and LI and between GDP and NLI. On the other hand, the (NARDL) bound test showed a that short-run and long-run relationships appeared between GDP and LI, but not between GDP and NLI