Vol 3, No 3 (2015)
Insurance Demand, Financial Development and Economic Growth in South Africa: Evidence from Toda-Yamamoto Causality Test
D. O. Olayungbo
Abstract
This paper examines the dynamic interactions among insurance demand, financial development and economic growth in South Africa for the period of 1970 to 2012. A Vector Error Correction Model (VECM) and Toda-Yamamoto (T-Y) causality test are used to analyze the short run and long run relationship after establishing a multivariate cointegration relation among the variables of interest. The VECM shows that, in the short run, financial development promotes insurance demand. The Toda- Yamamoto causality test supports the insurance-led and finance-led growth hypothesis with unidirectional causalities running from insurance activities and financial development to economic growth. Therefore, the results of this paper support the theory of supply leading and demand-following hypothesis for South Africa. We conclude that financial interdependence of insurance demand and financial development are crucial for growth in South Africa. The policy implication of the results is that efforts should be geared towards the implementation of policies that promotes the mutual interdependence of insurance and financial activities in South Africa.
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Keywords
Insurance Demand; Financial Development; Growth; T-Y causality; South Africa.
Publication information
Volume 3, Issue 3
Year of Publication: 2015
ISSN: 1857 - 8721
Publisher: EDNOTERA
How to cite
Olayungbo,D.O.: Insurance Demand, Financial Development and Economic Growth in South Africa: Evidence from Toda-Yamamoto Causality Test. Journal of Applied Economics and Business, Vol 3, No. 3, 35-55. (2015)