THE ROLE OF INSURANCE IN ECONOMIC GROWTH: A STATISTICAL ANALYSIS OF NEW EU MEMBER STATES

Abstract

This study delves into the intricate relationship between financial development and economic growth. The finance-growth nexus theory posits that financial development fosters economic growth through mechanisms such as the marginal productivity of capital, efficient allocation of savings to investment, savings rate, and technological innovation. These channels are facilitated by financial intermediaries, who offer economies of scale and the ability to diversify large sums of funds. The reduction of transaction costs, a primary function of financial intermediaries, was initially postulated by Gurley and Shaw in 1960. Empirical evidence, such as King and Levine's study in 1993, substantiates the growth-enhancing role of financial intermediation. Notably, the banking sector is found to make significant contributions to economic growth, underscoring a positive causal relationship.