Determinants of Life Insurance Demand in Ethiopia
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Date
2011-06
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Addis Ababa University
Abstract
The Ethiopian insurance industry is experiencing encouraging growth since its inception
in 1905; however, there is still low level insurance penetration equal to 0.2 % of GDP.
The paper tries to explore the determinants of life insurance demand in Ethiopia using a
time series data over the period of 1980-2009 within an error correction model. The
co-integration test revealed financial development (FD) and inflation are significant
variables both in the long run and short run dynamic regression with their positive and
negative sign respectively. A change in income has a positively correlated in the short
run, while the long run regression shows that current income is inversely related to
demand for life insurance. The current price of insurance, a change in real interest rate
(RIR) and gross domestic saving per-capita(GDS) have significant but inversely related
to demand for life insurance in Ethiopia. The error correction term is significant at
1 percent with a feedback effect of about 63 percent. The explanatory power of the
independent variables is also strong at about 98 percent. The Durbin Watson statistics of
1.93 indicates the presence of very little form of auto-correlation
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Keywords
Determinants of Life