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The CCE model applied to the nexus of real GDP and the insurance market

Werner, Isak LU (2021) NEKN01 20211
Department of Economics
Abstract
Existing studies on the relationship between the insurance market and economic development tend to use empirical methods that rely on the unrealistic assumption of cross-sectional independence. This thesis aims to highlight the drawbacks of this assumption. The results are achieved by comparing the results of the Common Correlated Effects (CCE) model to the two-way fixed effects model as well as the fixed effects model. All three models confirm most previous research, stating that there is a positive cointegrated relationship between the insurance market and real GDP. However, the results show that the CCE model accounts for more unobserved heterogeneity than the competition. This is indicated by a higher degree of normally distributed... (More)
Existing studies on the relationship between the insurance market and economic development tend to use empirical methods that rely on the unrealistic assumption of cross-sectional independence. This thesis aims to highlight the drawbacks of this assumption. The results are achieved by comparing the results of the Common Correlated Effects (CCE) model to the two-way fixed effects model as well as the fixed effects model. All three models confirm most previous research, stating that there is a positive cointegrated relationship between the insurance market and real GDP. However, the results show that the CCE model accounts for more unobserved heterogeneity than the competition. This is indicated by a higher degree of normally distributed residuals which are assigned a significantly lower degree of absolute average pairwise correlation. Therefore, the estimates produced by the CCE model are more reliable, making it more appropriate to use when investigating cross-sectionally dependent panel data. (Less)
Please use this url to cite or link to this publication:
author
Werner, Isak LU
supervisor
organization
course
NEKN01 20211
year
type
H1 - Master's Degree (One Year)
subject
keywords
Insurance market, economic development, cross-sectional dependence, cointegration, CCE estimation.
language
English
id
9057933
date added to LUP
2021-07-05 13:29:00
date last changed
2021-07-05 13:29:00
@misc{9057933,
  abstract     = {{Existing studies on the relationship between the insurance market and economic development tend to use empirical methods that rely on the unrealistic assumption of cross-sectional independence. This thesis aims to highlight the drawbacks of this assumption. The results are achieved by comparing the results of the Common Correlated Effects (CCE) model to the two-way fixed effects model as well as the fixed effects model. All three models confirm most previous research, stating that there is a positive cointegrated relationship between the insurance market and real GDP. However, the results show that the CCE model accounts for more unobserved heterogeneity than the competition. This is indicated by a higher degree of normally distributed residuals which are assigned a significantly lower degree of absolute average pairwise correlation. Therefore, the estimates produced by the CCE model are more reliable, making it more appropriate to use when investigating cross-sectionally dependent panel data.}},
  author       = {{Werner, Isak}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{The CCE model applied to the nexus of real GDP and the insurance market}},
  year         = {{2021}},
}