The Effect of Insurance Activity on per Capita Income in the Southern Mediterranean: An Empirical Analysis Using Jordan as a Case Study

Abstract

This study examines the effects of insurance activity on per capita income in the case of a southern Mediterranean country (Jordan) over the period 1990-2017 using an Autoregressive Distributed Lag (ARDL) cointegration analysis to describe the dynamic long relationship between per capita income and insurance activity. It provides empirical evidence that insurance sector activity, measured by insurance investment, had a negative and significant effect on per capita income in Jordan during the studied period. However, it was also found that the negative effects of insurance sector activity on growth were limited by other economic policies which hamper per capita growth, such as inflation. The study recommends that more diversification of insurance products is necessary and that new markets need to be explored in order for insurance companies in southern Mediterranean countries to compete in international markets. Although there are several agreements between Mediterranean countries, negotiations on minimizing restrictions on insurance company activities could be done through easing procedures, reducing costs and enhancing future economic relations by exploring new economic relations or by building on current protocol and trade agreements. Furthermore, the study notes that policymakers in southern Mediterranean countries must aim for a well-developed insurance sector so that its activity can contribute to economic growth through mobilizing national saving to finance long-term investment projects. More attention should be paid throughout the region to insurance sector activities while conducting financial sector analysis and macroeconomic policy design.