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Spirit of capitalism: religion and economic development.

Research across a broad group of countries has identified many determinants of economic growth, leading to the conclusion that successful explanations of economic performance have to go beyond economic variables to encompass political and social forces. Economic growth has been found to depend on variables such as education, health, fertility rates, rule of law, and electoral rights. Also important factors are propensity to invest, size of government, international openness, and macroeconomic stability. Given favorable levels of these key determinants of growth, poorer countries tend to grow faster and, thereby, approach the gross domestic product (GDP) of richer countries. However, because poorer countries typically rank low on a number of these growth determinants, they tend not to grow faster than average in an overall sense.

In the continuing search for an adequate theory of economic growth, some researchers have increasingly argued that such explanations for growth should go further to include a nation's culture, especially religion. In fact, recent research indicates that the economic influence of religion has a profound impact on economic performance. Religion influences the formation of beliefs that shape individual traits such as honesty, work ethic, thrift, and openness to strangers. Religious beliefs and related character traits can be seen as "spiritual capital," a concept that is analogous to the human capital that economists have found to be important for worker productivity. Human capital includes the skills and knowledge that come from formal schooling, on-the-job training, and guidance from parents. Analogously, spiritual capital includes formal education through organized religion, as well as influences from family and social interactions. Thus, the economic effects of organized religion can be seen as operating through the formation of spiritual capital.

Measuring Religion's Impact

The relationship between religion and economic growth becomes clear when measures of religiosity are incorporated into more traditional cross-country data sets on national-accounts variables and other economic, political, and social indicators observed since 1960. The measures of participation in organized religion and of religious beliefs come from representative surveys of individuals in about 60 countries, such as the World Values Surveys, International Social Survey Program, and Gallup Millennium Survey. Each survey typically covers between 1,000 and 2,000 respondents in a survey-year, providing data on household attendance rates at houses of worship, as well as information on religious beliefs quantified as the fraction of the population who answered "yes" to the question of whether they believe in heaven, hell, life after death, and God. Other questions, which might be more robust across religions, are whether the respondent considers himself or herself to be religious and whether religion plays an important role in his or her life.

But these data sources alone are not enough basis for firm conclusions about the role of religion in economic growth, since identifying the precise direction of causation is problematic. While the goal is to understand the effects of religiosity on economic growth, as measured by national levels of worship attendance and religious beliefs, there may be reverse effects of economic development on religiosity. This reverse channel has, in fact, been the focus of a substantial literature in the sociology of religion.

One prominent theory in this literature is the secularization hypothesis, whereby economic development is thought to make people less religions as gauged, for example, by church attendance and religious beliefs. This hypothesis also proposes that economic progress causes organized religion to play a lesser role in political decision-making and in other general social and legal processes.

The secularization hypothesis is controversial, and the continuing vitality, of religion in the United States has often been offered as a counter-example. A recent study by the economist Laurence Iannaccone shows that the "classic secularization pattern," whereby states that were once highly religious experienced steady declines in church attendance, applies only to a few countries in Western Europe. France, Germany, and Britain especially showed declines in church attendance rates from 40 to 60 percent in the 1920s and 1930s, to 10 to 15 percent today.

An important competing theory of religiosity--inspired by Adam Smith himself--focuses on "market" or "supply-side" forces. This approach downplays the role of economic development and other "demand factors" for religion and emphasizes instead the extent of competition among religion providers. A greater diversity of religions available in a country or region is thought to promote greater competition, hence a better quality religion product, and therefore higher religious participation and beliefs.

More fundamentally, the extent of religious competition depends on how the government regulates new entrants and existing providers in the religion market. Thus, the supply-side approach argues that government regulation, subsidy, and suppression are important determinants of religious participation and beliefs. The presence or absence of an established state religion is one dimension of this interaction between government and religion.

The primary purpose of our present research is not to assess the validity of the secularization hypothesis or the market model of religious participation. Rather, we are studying the country-wide determinants--or, at least, correlates--of religiosity to analyze the effects of religion on economic growth. Specifically, our study of religiosity helps to pin down the direction of causation from religion to economic performance, rather than the reverse. The estimation procedure is to isolate some variables--called instrumental variables--that have important influences on religiosity without being heavily influenced by economic variables. The estimation then reveals how differences in religiosity--driven by the variations in these instrumental variables--influence economic growth.

The basic empirical framework for such an analysis has been used in many previous studies. This approach relates economic growth to lagged values of a number of explanatory variables. These variables include levels of per capita GDP, schooling, life expectancy, the fertility rate, ratios of investment and government consumption to GDP, measures of international openness and the terms of trade, indicators of the rule of law and democracy, and the inflation rate (an indicator of macroeconomic stability). The present analysis adds measures of religiosity to this list of explanatory variables. Thus, we are examining how religion affects economic growth given values of the other explanatory variables. Moreover, the use of instrumental variables isolates the effects of religion on economic outcomes, rather than the reverse.

Religion Matters

The results of such studies have consistently found that religious beliefs profoundly influence economic growth. For example, for given levels of church attendance, economic growth rises when certain religious beliefs increase. The beliefs that seem to be growth-promoting are those concerned with hell, heaven, and an afterlife. In contrast, growth is not related to belief in God. Across a broad group of countries, the average fraction of persons expressing belief in God is 80 percent, compared to only 38 percent for hell, 55 percent for heaven, and 58 percent for an afterlife. Thus, it seems that affirmation of belief in God is a reflexive response with little content. In contrast, the survey responses about beliefs in hell, heaven, and an afterlife are less often positive and apparently more indicative of the religious convictions that matter for economic performance. It should be noted, however, that the positive link between religious beliefs and economic growth depends on die nature of religious doctrine.

Beliefs are growth-enhancing if the perceived punishments and rewards reinforce good behavior such as honesty and hard work. This relationship, however, would be reversed if the religious doctrine encouraged non-productive behavior such as violence. The generally positive results of the analysis suggest that this "dark side" of religion is atypical.

Another key finding is that, for given religious beliefs, greater participation in organized religious services--gauged by frequency of attendance at houses of worship--reducess economic growth. This result may seem paradoxical, given the earlier conclusion that religious convictions increase economic growth. Convictions such as a belief in heaven or hell might affect individuals by creating perceived punishments and rewards that relate to "good" and "bad" lifetime behavior--which in turn can influence behaviors like thrift, work ethic, and honesty that contribute to economic growth. But these values must come from somewhere in the first place. Thus, if we assume that religious beliefs are fixed--as we do in our empirical work--an increase in attendance at houses of worship signifies that the religion sector is less productive. That is, more resources, in terms of time and goods, are being consumed by the religion sector for given outputs (the religious beliefs). Hence, the negative relationship between attendance at houses of worship and economic growth can be explained by a causal chain whereby attendance at houses of worship affects religious beliefs, which affects individual traits, which in turn affects economic performance. This dynamic can explain the otherwise puzzling result that higher church attendance reduces economic growth.

However, the story is not quite so simple. Attendance at houses of worship may have a beneficial impact on growth by instilling stronger religious beliefs--especially with regard to concepts like heaven, hell, and the afterlife, which are linked to higher economic growth. Thus, to calculate the overall effect, we have to know the extent to which higher religious input (gauged, for example, by church attendance) leads to higher religious output (beliefs). When religious beliefs and church attendance increase together, the response of economic growth is weak. That is, countries that are more religious overall--higher beliefs and higher attendance--tend, other things equal, to grow at about an average rate. By contrast, countries that have high levels of belief and relatively lower levels of attendance at houses of worship--such as the United Kingdom, Japan, and Scandinavian countries seem to have historically high growth experiences.

The impact of attendance at houses of worship is further complicated by the fact that attendance may actually serve as a proxy for other dynamics at work. For example, it is possible that attendance may be important not because of its impact of religious beliefs, but because it contributes to the building of social networks and social capital through organized religious services. Similarly, the church-attendance variable may actually capture the influence of organized religion on laws and regulations that affect economic behavior. The overall empirical result of greater attendance is to reduce economic growth, but the precise mechanism for this result is still being studied and understood.

Figures 1 and 2 display some of the findings graphically. The horizontal axis in Figure 1 has a measure of the frequency of monthly church attendance in a country. The vertical axis shows the country's growth rate of per capita GDP over a 10-year interval, which can be 1965-75, 197-585, or 1985-95. The variable plotted adjusts the observed growth rate for the effects of all of the explanatory variables other than monthly church attendance. Conceptually, the fitted, downward-sloping line shows how economic growth would fall if monthly attendance at houses of worship were to rise, while the other explanatory variables did not change. One of these explanatory variables is religious belief, in this case, belief in hell. Thus, the negative effect on growth applies when belonging (that is, church attendance) rises for a given level of believing.


Figure 2 is constructed analogously, except that the horizontal axis is a measure of belief in hell. In this case, the upward-sloping line shows how economic growth would rise if belief in hell were to increase, while the other explanatory variables--including monthly church attendance--were held constant. Hence, this positive effect on growth applies when believing (in this case, in hell) rises for given belonging.

Future Research

Studies like this one have yielded other empirical results, many of which are preliminary and require further research. First, there is some indication that the stick from belief in hell is more potent than the carrot from belief in heaven in terms of growth promotion. This assertion still requires greater corroboration from forthcoming data in the 2001 World Values Survey. These data will be particularly useful because they contain far greater representation of Muslim countries, which tend to have high levels of belief in hell and heaven.

Second, there is reason to anticipate that the effects of beliefs in hell and heaven on economic performance would be weaker in religions such as Hinduism and Buddhism, for which hell and heaven do not represent ultimate individual objectives. There is weak support for this proposition in current data, but again the forthcoming 2001 World Values Survey should provide helpful data which includes expanded coverage of countries in which the population adheres primarily to Buddhism or other Eastern religions.

At this point, these findings about the economic effects of religion are exciting and provocative, although preliminary. There is more than enough in the results to warrant further research by ourselves and others; indeed, additional research can assess the effects of religiosity on political and social variables, including democracy, the rule of law, fertility, and health. This further research will likely modify our findings and may even overturn some of them. However, the overarching conclusion of this research is inescapable: a state's religiosity has important influences on its economic performance.
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Title Annotation:Beyond beliefs: religion
Author:Barro, Robert J.
Publication:Harvard International Review
Geographic Code:1USA
Date:Jan 1, 2004
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