| Abstract | Introduction: The possible role of foreign direct investments (FDIs) in the
insurance services industry has not received much research compared to
the banking industry. The FDI inflows are seen as crucial to the general
economic growth of these emerging European transition countries because
the insurance sector is still growing and integrating.
Purpose: This chapter explores whether the increase in FDI inflows leads to
higher life and non-life insurance penetration in different groups of European
transition countries and European post-transition countries.
Methodology: The study employs annual data between 1995 and 2021 using
dynamic ordinary squares (DOLS) estimator and Dumitrescu and Hurlin
(2012) panel causality methods.
Findings: The study found evidence about the link between FDI and life
and non-life insurance penetration, where their gains are marginal and very
weak when controlling the effect of Gross Domestic Product per capita
(GDPPC) in the long run. More specifically, the effect of FDI on insurance
development is greater in the European post-transition countries with higher
GDPPC and FDI inflows than in the European transition countries.
These discrepancies may be attributed to the various stages at which their
development policies have advanced as well as the overall execution of reforms within the insurance industry. The findings suggest affirmative
action programs should be put in place to attract FDI inflows in general and
insurance in particular.
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