The Determinants of Intra‐Industry Trade in Insurance Services

Abstract

In light of the growing significance of trade in financial services, and the emphasis placed on trade in financial services during the Uruguay round of trade negotiations, this article is the first study of the determinants of intra-industry trade (IIT) in insurance services. The article analyzes and measures the magnitude of IIT in insurance services for the United States. The empirical results of the determinants of IIT indicate that foreign direct investment in insurance services (FDI) is a significant contributor to the volume of trade in insurance services. These empirical findings confirm the new theoretical trade models that, unlike the traditional trade theory that considered trade and foreign direct investment in insurance services as substitutes, trade and FDI complement each other and hence multinational insurance companies are contributing to an increase in the volume of trade in insurance services. Furthermore, this study shows that trade intensity between the United States and its trading partners leads to product differentiation in insurance services and hence an increase in consumer welfare. Copyright 2003 The Journal of Risk and Insurance.

Foreign Participation in Life Insurance Markets: Evidence from OECD Countries

“…(4) Level of competition (Herfindahl index (HI)): In addition to the market liberalisation, this paper also incorporates a variable that accounts for the level of competition in the market. Ma and Pope 64 find that a more competitive non-life 55 Li et al (2003). 56 Browne et al (2000).…”

“…Outreville 76 has documented that governance factors can influence the choice of foreign affiliates' location by the largest insurance groups. 65 Li et al (2003). 66 Summing the squared market shares of individual insurers in each country and multiplying the result by 10,000 calculate the HI.…”

Financial services: Global perspectives

“…It is different from inter-industry trade in which a country could specialize in financial services and exports it in exchange for a different good or service for which it has no comparative advantage. Li et al (2003) have shown that there is a considerable amount of IIT in insurance services generated when the US financial institutions deal with foreign financial institutions.…”

International financial services: determinants of banks’ foreign assets held by non-banks

“…The study by Moshirian (2001) demonstrated that one of the implications of the distinction between US bank foreign branches and US banks' foreign assets is that one can now see that US banks' international lending activities can be generated by US banks operating in the United States, rather than exclusively by their operation in the foreign market. The study by Li et al (2003) analyze intra-trade in insurance services using some specific hypotheses to measure the role of financial institutions in supplying various differentiated financial products. Moshirian and Bishop (1997) and Moshirian and Van der Laan (1998) analyse and model the determinants of banks' foreign assets using quarterly data.…”