Relationship between the Insurance Market Activity, Banking Sector and Economic Growth (Study in Iranian Economy)

In the present study, the hypothesis of the type of relationship between insurance market activity, banking sector and economic growth in Iran has been investigated. In this regard, using time series data from 1980 to 2016, the relationship between insurance market activity and banking sector on the one hand and the simultaneous relationship between the insurance market, banking sector and economic growth on the other hand have been investigated. For this purpose, the indices of density (ID), penetration (IP) and composite index (IMA) that created by the principal component analysis approach (PCA) have been used as a proxy for the insurance market activity and domestic credit to private sector by banks (BMA) has been used as a proxy for the banking sector and the growth of GDP per capita has been used as a proxy for economic growth. The VECM model and Toda and Yamamoto approach are also used to examine the relationship between variables. The results of the causality analysis indicate that, despite the difference in results based on the type of alternative index of insurance market activity, the causality of the insurance market activity is towards the banking sector. Also a long-run relationship between the activity of the insurance market and the banking sector and the activity of the banking sector with economic growth confirmed