Insurance Industry and Economic Growth in Nepal : A Study with Granger Causality Test Approach

The objective of this study is to examine the causal relationship between insurance industry and economic growth of Nepal. The Granger causal relation has been examined among three insurance sector variables: life, non-life and total premium and three GDP related variables: agriculture GDP, non agriculture GDP and total GDP. Data has been taken from Economic Survey published by Ministry of Finance, GoN, Insurance Board of Nepal and Nepal Rastra Bank. The study covered the period from 1983-2013. Various econometric tools: Jarque-Bera test, Augmented Dickey-Fuller (ADF) test and Granger Causality test were employed. The result shows that there is unidirectional relationship between life premium and Agriculture GDP and Non Agriculture GDP; total premium and non agriculture GDP. The study finds that there is the supply leading relationship between financial institutions (insurance) and economic growth as there is no influence of GDP to insurance premium. There is no bidirectional relationship between premium amount and GDP. The paper suggests to examine the causal relationship of insurance with other macroeconomic variables like domestic consumption, investments, gross capital formation, broad money supply etc