Does insurance demand or financial development promote economic growth? Evidence from Taiwan

This study examines the dynamic relationship among insurance demand, financial development and economic growth in Taiwan between 1961 and 2006. Using a three-variable Vector Autoregressive (VAR) model, the competing hypotheses of demand-following versus supply-leading are empirically tested. Extending the conceptual link among these variables proposed by Hussels et al. (Citation2005), we find that there is an equilibrium relationship between demand, financial development and economic growth. In the short run, economic growth Granger causes insurance demand, and financial development Granger causes economic growth. In other words, financial development does promote real GDP growth, and a change in real GDP leads to deviation in real insurance demand in Taiwan. Managerial implications are proposed based on the empirical findings.