The dynamic relationship between insurance development and economic growth: New evidence from China's coastal areas

Insurance was widely recognized as a useful tool for risk management in regional economic growth. Lots of analysis focused on building a fixed functional relationship between insurance development and economic growth. However, the effects of this mechanism varied widely across countries. And there was a clear gap in the understanding of how this mechanism works in coastal areas, the forward position of one country. Could it be reflected by fixed function or a more complex one? The answer was crucial to realize the harmonious development, especially for China, the most important emerging economy. This study assessed China's 11 coastal cities, focusing on the dynamic linkages between insurance development and economic growth. Non-parametric local polynomial regression was used to obtain the change between insurance development and economic growth, and fit the curve relationship between insurance density per capita GDP, with the purpose of gaining the suitable function model. The result demonstrated that it was certain that insurance growth had a positive effect on the economic development of the coastal area, and the law of diminishing marginal returns held in most cases. We further classified research into three parts the Northern, Eastern and Southern coastal areas (China's administrative division), and found that, there were obvious differences in output efficiency and marginal revenue among the three regions. This relationship in the Northern and Southern area was stable, but the curve changed complicatedly in the Eastern area. So fixed function was not qualified to describe the linkage between insurance development and economic growth in China's coastal areas. Those conclusions offered several countermeasures for policy-makers and researchers.