Financial development and volatility of growth rates: Cross-country evidence on the link between insurance market activity and the volatility of GDP per capita growth rate

dc.contributorAalto Universityen
dc.contributorAalto-yliopistofi
dc.contributor.authorRiukula, Krista
dc.contributor.departmentDepartment of Economicsen
dc.contributor.departmentTaloustieteen laitosfi
dc.contributor.schoolKauppakorkeakoulufi
dc.contributor.schoolSchool of Economicsen
dc.date.accessioned2012-03-15T02:30:35Z
dc.date.available2012-03-15T02:30:35Z
dc.date.dateaccepted2012-02-27
dc.date.issued2012
dc.description.abstractPURPOSE OF THE STUDY The purpose of the study is to examine the relationship between insurance market activity and the volatility of the GDP per capita growth rate. We investigate whether insurance market activity has an effect on the volatility of GDP per capita growth rate and whether the effect of insurance market development on economic growth volatility follows a hump-shaped pattern, i.e. a shape of an inverse parabola. The role of the insurance sector has grown in importance. In addition to becoming quantitatively more important as a part of the general development of financial institutions, insurance has also become qualitatively more important due to the increase of risks and uncertainties in most societies. While there have been studies conducted on the financial development and macroeconomic volatility, the insurance sector has not received much attention in this respect. We fill this gap by reviewing theory and empirical evidence and suggest channels of influence. DATA We use measures of insurance penetration, i.e. insurance premiums in relation to GDP, as proxies for insurance market development for a set of 74 countries over the period from 1980 to 2007. We will control for variables, e.g. the country size in terms of population, the inflation and exchange rate volatility and government consumption. RESULTS Findings of the study show a negative and significant relationship between insurance market activity and GDP per capita growth volatility suggesting that the proxies used for insurance market activity have a causal effect on economic growth volatility. We find no evidence suggesting that the relationship would be hump-shaped. Moreover, the results for the non-linear effect suggest that the effect of insurance market activity is negative in all cases, i.e. total, non-life and life insurance. According to our study, it might be beneficial for governments and economies to encourage the use of insurance policies and help households and companies in risk management.en
dc.ethesisid12756
dc.format.extent92
dc.identifier.urihttps://aaltodoc.aalto.fi/handle/123456789/3455
dc.identifier.urnURN:NBN:fi:aalto-201203181681
dc.language.isoenen
dc.locationP1 I
dc.programme.majorEconomicsen
dc.programme.majorKansantaloustiedefi
dc.subject.heleconkansantaloustiede
dc.subject.heleconeconomics
dc.subject.heleconrahoitusmarkkinat
dc.subject.heleconfinancing markets
dc.subject.helecontaloudellinen kasvu
dc.subject.heleconeconomic growth
dc.subject.keywordFinancial development
dc.subject.keywordinsurance
dc.subject.keywordpanel data
dc.subject.keywordeconomic volatility
dc.subject.keywordgeneralized method of moments
dc.titleFinancial development and volatility of growth rates: Cross-country evidence on the link between insurance market activity and the volatility of GDP per capita growth rateen
dc.typeG2 Pro gradu, diplomityöfi
dc.type.dcmitypetexten
dc.type.ontasotMaster's thesisen
dc.type.ontasotPro gradu tutkielmafi
local.aalto.idthes12756
local.aalto.openaccessno
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