Natural disaster and economic growth in Africa: the role of insurance

AbstractThis study examines natural disasters’ short-run and long-run effects on economic growth. We analysed insurance’s short-run and long-run role in the natural disaster-economic growth nexus using 48 African countries from 2000 to 2020. Using a two-step system GMM, the study revealed that natural disasters have a short-term detrimental effect and a favourable long-term impact on economic growth. Regarding the role of insurance in the relationship between natural disasters and economic growth, it should be noted that while insurance and those affected have a positive complementary effect on economic growth in the short run, the long-term effects of insurance and natural disasters on economic growth are negligible. Therefore, regulators must enforce periodic high regulatory capital requirements to ensure the financial stability of insurance markets, especially the non-life market in Africa, and to enable insurers to absorb the unforeseen shocks from natural disasters in Africa. Also, regulators should create insurance coverage awareness through insurance education to promote insurance development and help reduce individuals’ and businesses’ financial losses upon the occurrence of natural disasters.