Estimating Spillover Effects in Property and Casualty Insurance Consumption

The determinants of insurance consumption have been extensively studied, yet spatial correlations are rarely considered within this framework. In this article, we discuss several channels through which spatial dependence may arise and test for spatial dependence using six years (2009–2014) of province, city, and firm-level data from China. Results suggest that spatial spillover effects are large and have the potential to seriously bias marginal effect estimates if neglected. Specifically, when regions experience similar changes in determinants, marginal effect estimates in spatial models are nearly 1.5 times that implied by aspatial models. Additionally, we investigate the sources of the spatial dependence and find that cross-border spillovers occur within and between firms.