On the relationship between insurance sector and economic growth : evidence from Sudan

Abstract EN

Over the last few decades, the relationship between insurance(1) sector development and economic growth has been a popular issue of debate that has gained considerable attention both in the context of developed and developing countries(2).

A clear understanding of the insurance-growth nexus may allow appropriate government policies to be effectively implemented which will ultimately facilitate economic development.

In finance literature, it is widely accepted that insurance-growth relationship may be country specific in the sense that different countries show different causality directions.

The insurance sector plays a critical role in financial and economic development.

By introducing risk pooling and reducing the impact of large losses on firms and households, the sector reduces the amount of capital that would be needed to cover these losses individually, encouraging additional output, investment, innovation, and competition (Erik et al.

2011).

According to Skipper (1998), the services offered by insurance companies have significant impact on a country’s, economic growth through the following channels: Firstly, insurance companies promote financial stability and anxiety reduction through the indemnification of risk at the individual, societal, corporate and national level.

Secondly, insurance companies are viable substitutes for costly government social security programs.

Thirdly, insurance companies facilitate trade and commerce at both the domestic and international level.

Moreover, insurance also facilitates innovation by offering to underwrite new risk especially in new growth areas.

Fourthly,