THE DYNAMICS EFFECT OF LIFE INSURANCE BANKING AND STOCK MARKET ON ECONOMIC GROWTH IN NIGERIA

Abstract

This study provides new evidence on the long- and short-term effects of life insurance, banking, and stock markets on economic growth. Insurance activity is measured through three distinctive proxies such as net written premiums, penetration and density. The Hausman statistics confirmed that fixed effect model is appropriate for this data-set. This study explored the effect of life insurance, banking and stock market performance on economic growth in Nigeria. Insurance is a cover from financial loss. The sample consists of 171 respondent. Our findings suggest that the effects of financial activities on growth vary with the period, income level, and financial development.

TABLE OF CONTENT

Title page

Approval page

Dedication

Acknowledgment

Abstract

Table of content

CHAPTER ONE

1.0   INTRODUCTION

1.1        Background of the study

1.2        Statement of problem

1.3        Objective of the study

1.4        Research Hypotheses

1.5        Significance of the study

1.6        Scope and limitation of the study

1.7       Definition of terms

1.8       Organization of the study

CHAPTER TWO

2.0   LITERATURE REVIEW

CHAPTER THREE

3.0        Research methodology

3.1        sources of data collection

3.3        Population of the study

3.4        Sampling and sampling distribution

3.5        Validation of research instrument

3.6        Method of data analysis

CHAPTER FOUR

DATA PRESENTATION AND ANALYSIS AND INTERPRETATION

4.1    Introductions

4.2    Data analysis

CHAPTER FIVE

5.1    Introduction

5.2    Summary

5.3    Conclusion

5.4    Recommendation

Appendix

CHAPTER ONE

                                        INTRODUCTION

1.1 Background of the study

The increasing stake of the insurance industry in the cumulative global financial sector in developed and developing countries have shifted concentration to the life insurance-growth relationship. Studies revealed that the development in the insurance activities witnessed between 2000 to date (175%) globally indicates a tremendous increase in the sector which significantly overtake global economic growth (Outreville, 2011; 2013). For instance, the global insurance premium volume for the year 2009 was US $4.06 trillion; this is equivalent to 7% of the world GDP. Between 2010 and 2011, the insurance premium rosed from $4.3trillion to $4.57 trillion (that is, 6% increase). Subsequently, it rose from $4.57 trillion to $4.61 trillion and $4.64 trillion in 2012 and 2013 respectively (IIF, 2010; Swiss Reinsurance Company, 2015). These advances have redirected the focus of research scholars towards an investigating into the connection between insurance and economic growth. Undoubtedly, numerous studies revealed that the advancement of the insurance industry is linked to the economic growth of a country (Arena, 2008; Curak et al., 2009; Ward and Zurbruegg, 2000; Avram et al., 2010; Din et al., 2017a). The financial sector (banking) all over the world, especially those in developing countries like Nigeria, play some vital roles in financing their countries’ economic projects and activities as an attempt to ensure sustainable economic growth. According to Shaw (2013), financial or credit development has the potential of bringing about some economic growth. It achieves this objective by raising savings, improving the efficiency of loanable funds and making way for capital accumulation. Agada (2010), opines that the availability of credit enables firms to increase production output and efficiency – a situation which has a ‘multiplier’ effect on the profitability of banks through the interest earned by them. Banking sector credits have a positive role in a country’s economic growth as various economic agents obtain them to meet their operational expenses (Nwanyanwu, 2008). For Adamu (2000), the provision of credit is a means of achieving economic growth through self-employment opportunities. Adamu (2000) further explains that credit can be used to save an economic activity from collapsing totally, should there arise some unforeseen threatening circumstances. The debate on the interventionary role of the financial sector in economic development has occasioned many discussions in literature. There is seemingly a consensus among researchers that the role played by this sector banks helps significantly in boosting economic growth and economic development. Akintola (2004) views banks’ traditional roles as including agricultural and manufactural financing as well as syndication of credit to the productive sectors of the economy. Akintola (2004) opines that the efficient exercise of those roles will boost economic growth in the same proportion. It is evident that the Central Bank of Nigeria (CBN) plays a leading and catalytic role as far as credit advancement is concerned. The CBN uses direct control to influence both the overall credit expansion and to determine the proportion of bank loans and advances allocated to high priority sectors and others (Akpansung and Babalola, 2009). Driscoll, (2004) and Jayaraine and Strahan (1996) both posit that financial development can bring about economic growth by raising savings, improving allocative efficiency of loanable funds and promoting capital accumulation. Well-developed financial markets are necessary for overall economic advancement of the less developed and emerging economies (Jayaratne and Straham, 1996). The relationship between stock market development and economic growth has been a debatable issue in finance and economics. This debate has produced two schools of thought. The first is the positive linkage school of thought. It is the opinion of this school of thought that a well functioning stock market will enhance economic growth (Alile, 2004; Atje and Jovanovic, 1993; Oyijide, 1994). The other school of thought however says that the alleged positive linkage between stock market development and economic growth is not proven and at best is ambiguous (Dimirguc-Kunt and Levine, 1996; Shleifer and Summer, 1988; Bhide, 1989). Numerous researchers especially in advanced European and Asian countries have contributed to this discourse by empirically providing evidence supporting a significant positive impact of stock market development on economic growth, though there seems to be a few dissenters who have opined that the impact is not significant. However, there exists very little empirical evidence on the relationship between stock market development and economic growth in a developing country like Nigeria. The majority of the empirical literature on growth that explicitly model finance as an explanatory variable in the growth process in Nigeria is limited to financial intermediation by the banking sector and fails to mention the role of the non-banking sector; like the stock markets. More specifically, these studies have used highly aggregated indicators of financial intermediation; for instance, the ratio of broad money supply (M2) or private sector credit to GDP. Hence the importance of this study is justified.

1.2 STATEMENT OF THE PROBLEM

Life insurance business plays an important role in economic growth by mitigating business risks occasioned by sudden and devastating occurrences in both developed and developing economies. The sector provides risk management and risk adjustment services to other sectors of the economy such as industrial, transportation, agricultural, mining, petroleum, banking, etc. In recent times there is a growing concern on the role of stock market in economic growth. The stock market is in the focus of the economist and policy makers because of the perceived benefits it provides for the economy.  A large part of the literature on economic growth suggests that the development of banking sector should lead towards economic growth. Usually financial services work through efficient resource mobilization and credit expansion to raise the level of investment and efficient capital accumulation. This has necessitate the need for the study to address the ills in the insurance, banking and stock market in Nigeria.

1.3 OBJECTIVE OF THE STUDY

The study has one main objectives which is further divided into general and specific objective, the general objective is to examine the dynamics of life insurance, banking and stock market on economic growth. The specific objectives are;

1. i) To ascertain if there is any relationship between life insurance and economic growth in Nigeria
2. ii) To ascertain the impact of the banking sector on Nigeria economic growth

iii) To ascertain if there is any significant relationship between stock market and economic growth in Nigeria

1. iv) To proffer suggested solution to the identified problem

1.4 RESEARCH QUESTIONS

The following research questions were formulated by the researcher to aid the completion of the study;

1. i) Is there any significant relationship between life insurance and economic growth in Nigeria?
2. ii) Is there any impact of the banking sector on Nigeria economic growth?

iii) Is there any significant relationship between stock market and economic growth in Nigeria?

1.5 RESEARCH HYPOTHESES

The following research hypotheses were formulated by the researcher to aid the completion of the study;

H₀: There is no significant relationship between stock market and economic growth in Nigeria

H₁: There is a significant relationship between stock market and economic growth in Nigeria

1.6 SIGNIFICANCE OF THE STUDY

It is believed that at the completion of the study, the findings will be of importance to the management of Nigeria insurance sector as the study seek to explore the contribution of the insurance sector to Nigeria economic growth, the study will also be of importance to the Nigerian banking sector as the study seek to examine the impact of the banking or financial sector to the economic growth of Nigeria, the study will also be of significance to the management of Nigeria stock exchange as the study seek to elaborate on the importance of the stock market on Nigeria economic growth and development. The study will also be of importance to researchers, academia’s, students, teachers and the general public as the study will contribute to the pool of existing literature on the subject matter and also contribute to knowledge.

1.7 SCOPE AND LIMITATION OF THE STUDY

The scope of the study covers the dynamic effect of life insurance, banking and stock market on economic growth in Nigeria, but in the course of the study, there are some factors that limited the scope of the study which were out of the researchers control;

1. a) AVAILABILITY OF RESEARCH MATERIAL: The research material available to the researcher is insufficient, thereby limiting the study.
2. b) TIME: The time frame allocated to the study does not enhance wider coverage as the researcher has to combine other academic activities        and examinations with the study.
3. c) FINANCE: The finance available for the research work does not allow for wider coverage as resources are very limited as the        researcher has other academic bills to cover.

1.8 OPERATIONAL DEFINITION OF TERMS

Dynamic effect

Dynamic effects on structural units include the moving action of upcoming external forces like wind forces, seismic forces on high rise structures, the hydrostatic pressure on liquid retaining structures and traffic impacts on the pavements

Insurance

Insurance is a means of protection from financial loss. It is a form of risk management, primarily used to hedge against the risk of a contingent or uncertain loss. An entity which provides insurance is known as an insurer, insurance company, insurance carrier or underwriter

Life insurance

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of an insured person

Bank

A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets.

Stock market

A stock market, equity market or share market is the aggregation of buyers and sellers of stocks, which represent ownership claims on businesses; these may include securities listed on a public stock

Economic growth

Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time.

1.9 ORGANIZATION OF THE STUDY

This research work is organized in five chapters, for easy understanding, as follows Chapter one is concern with the introduction, which consist of the (overview, of the study), statement of problem, objectives of the study, research question, significance or the study, research methodology, definition of terms and historical background of the study. Chapter two highlight the theoretical framework on which the study is based, thus the review of related literature. Chapter three deals on the research design and methodology adopted in the study. Chapter four concentrate on the data collection and analysis and presentation of finding.  Chapter five gives summary, conclusion, and recommendations made of the study.

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