ECONOMICS OF RELIGION:
THE ROLE OF RELIGION ON
ECONOMIC PERFORMANCE
A Review of Literature
Davood Manzoor,
Assistant Professor, Imam Sadiq University
“It will not perhaps surprise people that
economists have something to say about the
economics of religion, since economists believe
they have something to say about everything;
what is surprising is that religion has
something to say about economics.”
Deirdre N. McCloskey, University of Illinois,
Chicago
Introduction
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Can belief in heaven or hell be a competitive
advantage for nations?
It's not the sort of question that many
economists ask.
With exceptions like Adam Smith, the giants
of economic theory have had little to say on
matters of faith.
Introduction
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Most of economists have tended to accept
the secularization thesis advanced by Max
Weber in "The Protestant Ethic and the Spirit
of Capitalism:
As economies become more advanced and
as technology progresses, religion will
decline as a force.
Introduction
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The wall separating religion and economics is
being breached.
In the past 5 to 20 years, more and more
scholars have been using conventional
economic methods to understand the way in
which religion relates to the rest of society and
to the economy in particular.
Introduction
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Douglass North (1971, 1991) has proposed—and a
steadily growing body of empirical literature has
confirmed—that institutions, more than any other
factor, determine economic performance.
failure of more conventional models to account for
economic performance through time has induced
many economists to look to more non- traditional
explanations of economic performance
physical capital accumulation, human capital
accumulation, and technological change as such only
account for a fraction of economic growth through
time.
Introduction
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Institutions are the formal rules, informal
norms, and enforcement mechanisms that
comprise the “rules of the game” and
determine the incentives to which people
respond.
A country’s institutional constellation has its
foundation in the beliefs and ideologies of the
polity, beliefs and preferences shape the
performance of economies through time.
Religions share a body of common ethical
propositions that govern human behavior.
Theoretical Approaches
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Regarding the conceptual or theoretical approaches
to the connection between religion and economy,
there are two causal directionsin the literature on the
sociology of religion
First: Religion is dependent upon developments in
the economic and political aspects of contemporary
life. Events in an economy—levels and standard of
living or governmental market interference —
influence such things as attendance at religious
services or religious beliefs.
Theoretical Approaches
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There are two important sociological theories
about how religion responds to these factors
One approach is called the “Secularization
Hypothesis” a part of “Modernization
Theory,” which says that As economies
develop and get richer, people supposedly
become less religious. “Less religious” .
Theoretical Approaches
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The second important approach is the
“Religion Market Model.”
The way government interacts with religion
and influences the extent of participation in
religion
Sometimes the government regulates the
market, possibly promoting a monopoly
religion or making it difficult for other religions
to flourish.
Theoretical Approaches
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It might detract from religiosity : If you have
an established religion, you tend to have a
monopoly, and monopolies tend to function
inefficiently.
Established religion tends to go along with
government funding of religious activities
which might result in greater religious
participation
Theoretical Approaches
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The second theoretical approach looks at the
connection between religion and economic
and social life from the other direction.
Religion is thought of as being the
independent variable, influencing something
about outcome on the economic, political,
and social side.
Theoretical Approaches: Adam Smith
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In Wealth of Nations, Adam Smith argued that
participation in religious sects could potentially
convey two economic advantages to adherents
Reputational signal: membership in a “good”
sect could convey a reduction in risk associated
with the particular individual and ultimately
improve the efficient allocation of resources
Sects could also provide for extra-legal means
of establishing trust and sanctioning miscreants
in intragroup transactions, again reducing
uncertainty and improving efficiency
Theoretical Approaches: Adam Smith
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Hoselitz (1960) and McClelland (1961):
Traditional societies resist change, and innovative
groups can be important in the process of
modernization. Religious affiliation could serve as
the base for group cohesion necessary to
successfully challenge established institutions and
practices
Theoretical Approaches: Max Weber
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In The Protestant Ethic and the ‘Spirit’ of
Capitalism, Weber (1905/2002) contended
that the Protestant Reformation was critical to
the rise of capitalism through its impact on
belief systems
Calvinist doctrine of predestination and the
associated notion of the “calling” were
essential for transforming attitudes toward
economic activity and wealth accumulation
Theoretical Approaches: Max Weber
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individuals were predestined to salvation or
damnation, and “good works” were a means of
self-assurance and demonstration to others of
one’s fate. Each had a “calling,” and the successful
completion of this religious mission on a daily basis
was pleasing to God and a mark of His blessing.
The result was a “this-worldly asceticism,” which
focused adherents on diligent, efficient economic
activity, thrift, and non-ostentatious accumulation
of wealth, which he saw as the bedrock of modern
capitalism.
Theoretical Approaches: Max Weber
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Blum and Dudley (2001) provide another version of the Weber
thesis, arguing that the Calvinist doctrine of predestination (in
contrast to the Catholic practice of ritual penance), in gametheoretic terms, increased the cost of contractual defection (i.e.,
breaking contracts was a bigger deal for Protestants). This
Protestant reluctance to break contracts contributed to greater
trust and willingness to honor contracts with strangers and
thereby contributed to the spread of more extensive information
networks in the Protestant lands of Northern Europe, and it was
these network externalities that promoted growth and the rise of
industrial capitalism.
Theoretical Approaches: Arthur Lewis
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Nobel Laureate W. Arthur Lewis, is one of the
few who expressed skepticism that religious
beliefs had any significant impact on
economic behavior and indeed argued that
the causality probably ran the other direction:
Despite religion’s claim to be the ultimate
primal, changes in economic circumstances
spurred theological adaptation (Lewis 1955).
Emprical Results: Robert J. Barro and
Rachel M. McCleary
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Robert J. Barro and Rachel M. McCleary, are a
husband-and-wife team based at Harvard.
Professor Barro is a prolific economist who
has long been interested in studying how and
why economic growth rates differ among
countries.
Professor McCleary directs the Project on
Religion, Political Economy, and Society at
Harvard's Weatherhead Center for
International Affairs
Emprical Results: Robert J. Barro and
Rachel M. McCleary
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In order to get a broad cross-country sample
of the extent of religiosity, the things they are
measuring come from six important
international surveys of values and other
activities. These were carried out from the
early 1980s through 1999. Three of these
surveys are waves of the so-called World
Value Survey: 1981, 1990, and 1995.
Emprical Results: Robert J. Barro and
Rachel M. McCleary
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Greater economic development is associated with
less religiosity.
In two countries where religious service attendance
is essentially the same, the one whose people have
a greater belief in heaven and hell would experience
faster economic growth.
In two countries where the populations have similar
rates of belief in heaven and hell, the one in which
church attendance is greater would have slower
growth.
Emprical Results: Robert J. Barro and
Rachel M. McCleary
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Religion can affect economics by fostering
beliefs that influence productivity-enhancing
traits like thrift, hard work and honesty. A
widespread feeling that such behavior may
ultimately be rewarded (a belief in heaven),
or that a lack of such behavior may be
punished (a belief in hell) may therefore spur
economic growth.
Emprical Results: Robert J. Barro and
Rachel M. McCleary
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countries' economies may perform best when
people have relatively higher levels of religious
belief than religious participation.
Among the nations falling into this category are
Japan, South Korea, Singapore and some
Scandinavian countries - all of which performed well
economically in the period studied.
Countries in which belief was low compared with
religious participation included India and many in
Latin America.
Emprical Results: Robert J. Barro and
Rachel M. McCleary
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Belief in hell proved to be a more significant
economic factor than belief in heaven. "The
stick of punishment may be more powerful
compared with the carrot,"
Emprical Results: Larry Iannaccone
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Iannaccone, an economics professor at
George Mason University who studied at
Chicago under Becker and who heads a new
academic group, the "Association for the
Study of Religion, Economics & Culture"
While academics ignored religion in part out
of a belief that it would fade under the
onslaught of secularization we finally figured
out that religion remains a very powerful force
in contemporary society
Emprical Results: Larry Iannaccone
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Economists should pay more attention to the
intersection of religion and economics
It's almost impossible to live in the 21st century and
look around and say that religion has no impact
anymore
Abundant evidence affirms that religious belief
affects a wide range of behavioral outcomes and
religious activity can affect economic performance at
the level of the individual, group, or nation through
at least two channels.
Emprical Results: Marcus Noland
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He is a senior fellow at the Institute for
International Economics.
In his paper (2004),"Religion, Culture, and
Economic Performance” he tries to test the
hypothesis that religious attitudes affect
national economic performance.
Emprical Results: Marcus Noland
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The theoretical literature on the subject is
indeterminate.
He has found correlations between religious
affiliation, the intensity of religious belief, and
indicators of cultural tendencies
The national cultural measures have no
explanatory power with respect to national
economic performance once conventional
economic fundamentals are taken into
account.
Emprical Results: Marcus Noland
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In contrast, in both cross-country and withincountry regressions, the null hypothesis that
religious affiliation is uncorrelated with
performance can frequently be rejected
Some commentators have claimed that Islam
is inimical to growth. He has found that in
general this is not borne out by the
econometric analysis either at the crosscountry or within-country level.
Emprical Results: Marcus Noland
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He has also found that predominately Muslim
countries are seldom outliers (either
positively or negatively) in the cross-country
regressions.
In most cases, the coefficient on the Muslim
population share is statistically insignificant.
With one exception, where it is significant, it
is always positive.
Emprical Results: Marcus Noland
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Islam does not appear to be a drag on growth
or an anchor on development as alleged. If
anything, the opposite appears to be true. If
one is concerned about economic
performance in predominately Muslim regions
or countries, conventional economic analysis
may yield greater insight than the sociology
of religion.