Insurance Market Development

partly attribute the growth of companies to financial 
innovation. 
Arestis and Demetriades (1997), De-
metriades and Hussein (1996), and Pesaran, 
Haque, and Sharma (2002) have highlighted 
the importance of accommodating causal 
relationships to cross-country differences in 
size and direction. That is, the issue of “het-
erogeneity” is crucial in gauging the eco-
nomic role of insurance across different 
countries. Ward and Zurbruegg (2000) also 
examine the causal relationship between in-
surance industry growth and economic 
growth. Recognizing that the economic 
benefits of insurance are conditioned by na-
tional regulations, economic systems, and 
culture, they argue that examination of the 
interrelationships between insurance and 
economic growth must be done country-by-
country.
Looking beyond questions of supply, Been-
stock, Dickinson, and Khajuria (1986) and 
Browne and Kim (1993) found that the 
state’s role in providing insurance services 
was a determinant of life insurance demand. 
Specifically, they found an inverse relation-
ship between life insurance premiums and 
social security coverage. According to 
Hofstede (1995), the insurance level within 
an economy will depend on the national cul-
ture and how it affects individual willing-
ness to use insurance contracts to handle 
risk. Fukuyama (1995) confirms that hetero-
geneity is likely to be conditional on the cul-
tural context of a given economy. Insurance 
will offer important economic benefits when 
activities generally are seen as risky and 
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when the possibility of adversity is managed 
optimally through insurance contracts rather 
than other risk transfer mechanisms. Fuku-
yama connects these cultural differences 
with the level of trust in the economy.