Anaysis of insurance practices and economic growth in Nigeria: using co-integration test and error correction model

Eze Onyekachi Richard¹ and Okoye Victor²

^1,Department of Banking and Finance, Ebonyi State University, P.O.Box 053 Abakaliki-Nigeria.

²Department of Banking and Finance, Federal Polytechnic Oko, Anambra State-Nigeria.

*Corresponding Author’s E-mail: ezerich2009@yahoo.ca

Accepted 22 January 2013

Abstract

The study examines the impact of insurance practice on the growth of Nigerian economy. Insurance premium income, total insurance investment and income of insurance development was used as determinants of insurance practice. We employ unit root tests, Johansen co-integration test and error correction model in data analysis and to determine the short and long run effect of the model. The study observed that the insurance premium capital has significantly impacted on economic growth in Nigeria; that the level of total insurance investment has significantly effected on economic growth in Nigeria; and that there is causal relationship between insurance sector development and economic growth in Nigeria. The implication of these findings is that insurance industry would contribute meaningful to the growth of Nigeria economy in long run. The study concludes that there is a significant positive effect of insurance practice on the growth of Nigerian economy. We therefore recommend that having seen that there is long-run relationship between insurance industry practice and economic growth in Nigeria. There is need that more efforts should be made to increase transparency and efficiency in insurance industry through adequate legislation and policy formulation targeted at providing institutional improvement, especially in risk management and product innovations in insurance industry.

Keyword: Insurance, Premium, Economic Growth, Practices, ECM.