Investigating the Insurance – Growth Nexus from a Low-Income Country: Perspective of Malawi

Jenala, Chikondi

Investigating the Insurance – Growth Nexus from a Low-Income Country: Perspective of Malawi

Thesis / Dissertation

2025

Publisher

University of Cape Town

Department

Graduate School of Business (GSB)

Faculty

Faculty of Commerce

Abstract

Malawi is a low-income small country whose financial market is not fully developed, and it is prone to disasters due to adverse weather conditions. The economy depends on subsistence agriculture from small-scale farmers who rely on rainfall for their productivity, and they do not have insurance to mitigate against exposure to adverse weather conditions. The impacts of climate change will heavily exacerbate their exposure and consequently impact the economy of Malawi. However, the undercurrents of the interaction between insurance and economic expansion in Malawi have hardly been explored in the literature. This study investigated the long run and short run causal relationship between insurance industry activities and economic growth in Malawi using time series data from 1983 to 2019. The study employed the linear and nonlinear augmented Auto Regressive Distributed Lag (ARDL) model to study the relationship between insurance market activities and economic growth using insurance penetration to stand for insurance activities in Malawi. The results showed that there was neither a linear nor non-linear long run relationship or asymmetric connection between insurance and expansion of the economy in Malawi. Furthermore, the short run relationship was not found to be significant too. To test the direction of causality between insurance and economic growth, the Granger causality test was performed using the Vector Autoregressive (VAR) model, and the results proved the neutrality hypothesis for Malawi, with no causality existing between insurance and Malawi's economic expansion. This demonstrated that the insurance market in Malawi is operating at a low threshold that does not influence economic growth. The study recommends that the Government should put in place policies that will help to improve financial development and deepening, and increase participation of the majority of subsistence farmers so that they reduce their vulnerability and also raise the insurance thresholds to make it positively affect economic development.