The Impact of the Insurance Industry on Economic Growth in Saudi Arabia

Abstract

Purpose: This study investigates the impact of the insurance industry on economic growth in Saudi Arabia, with a particular focus on two key insurance variables (insurance premiums and investment by insurance companies) and their impact on the non-oil sector’s growth. In addition, this study examines the direction of the causal relationship between insurance (insurance premiums and investment by insurance companies) and economic growth (non-oil GDP) in Saudi Arabia. Design and Methodology: This study followed the quantitative research design based on quarterly time-series data spanning from 2009:Q1 to 2020:Q4. The econometric techniques of cointegration and error correction mechanism were utilised within the framework of the ARDL model to reveal the long-run and short-run impact of the insurance industry on economic growth (non-oil GDP), and the Granger causality procedure was utilised to establish the direction of the causal relationship between insurance and economic growth (non-oil GDP) in Saudi Arabia. Results: The results indicate that insurance premiums, alongside investment by insurance companies, exert a significant positive impact on Saudi Arabia’s economic growth (non-oil GDP). In addition, the study revealed a unidirectional causality running from economic growth (non-oil GDP) to the insurance sector (insurance premiums and investment by insurance companies), as well as a unidirectional causality running from insurance premiums to investment by insurance companies. Recommendations: This study recommends, among other things, that in all efforts at diversification of income sources and a shift away from relying solely on oil revenue, serious consideration should be given to the role of the insurance industry, whose duty is to support and encourage new companies and industries, particularly within the non-oil sector. Contribution/Added Value: This study has contributed to the literature by investigating the impact of the insurance industry on economic growth, focusing on the non-oil GDP as a proxy for economic growth in an oil-rich economy, by using up-to-date data from 2009 to 2020.