The Causal Nexus between Insurance Sector Development and Economic Growth: Empirical Evidence from Botswana
Sladen Moyo ORCID ↗
International Journal of Research in Business and Social Science · 2026 · Vol. 15 / Issue 5 · 164-178
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Abstract
Does Botswana’s economic growth drive insurance sector development or follows it? This study evaluates the empirical applicability of the supply-leading and demand-following hypotheses. It employs the Autoregressive Distributed Lag bounds testing approach and Granger causality analysis within a Vector Error Correction Model framework, to examines the significance of dynamic long-run, short-run and causal relationship between the Insurance sector development (total insurance penetration) and economic growth (Gross Domestic Product per capita) over the period 2000–2023. To reduce specification bias, the control variables used are gross fixed capital formation for physical capital accumulation, inflation for macroeconomic stability and trade openness for external trade exposure. The findings indicate a statistically significant long-run cointegrating relationship among the variables, with inflation exerting a highly significant negative effect on Gross Domestic Product per capita while total insurance penetration indicates a statistically insignificant direct long-run impact. In the short run, total insurance penetration exerts a robust and statistically significant negative effect on Gross Domestic Product per capita, validating the presence of a 'savings-substitution' effect and domestic capital leakage channel identified in earlier literature. The Pairwise Granger causality analysis yields a strong backing for the demand-following hypothesis at 5% significance level, and a weak evidence of a supply-leading effect at 10% level meaning the insurance market acts primarily as a passive responder to macroeconomic expansion rather than a primary growth locomotive. Policy recommendations stress the need for regulatory reforms to boost domestic insurance premiums reinvestment, stimulate structural product innovation, and deepen financial inclusion to unlock growth-insurance complementarities.
Keywords: {'name': 'ARDL Bounds Testing, Botswana, Economic Growth, GDP, Granger Causality, Insurance Premium, Insurance Sector Development'}
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Sladen Moyo
Ba Isago University
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