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The Role of Religion in Economic Development

Article  in  SSRN Electronic Journal · January 2017

DOI: 10.2139/ssrn.3402129

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International Journal of Research in Economics and Social Sciences (IJRESS)
Available online at: http://euroasiapub.org
Vol. 7 Issue 8, August- 2017, pp. 162~169
ISSN(o): 2249-7382 | Impact Factor: 6.939

The Role of Religion in Economic Development

Siddharth Singh

Research Scholar,

epartment of Economics, Banaras Hindu University, Varanasi-221005

Abstract

The discourses on economic development is mostly focussed on role of natural resources, human
resources etc in predicting the growth pattern. The noneconomic factors like religion have been
considered as having indirect role in determining the economic development. This paper aims to
analyses the role of religion in the economic development. The analysis has been done based on
GDP per capita and consumption data and on the world values survey data on religious
denomination. The religious denomination is used to decide the dominant religion in the country.
It is found that religion has a negative impact on the economic development of a country because
the religious practices acts as a hindrances in promoting economic activity.

Keywords: Economic Development, GDP per capita, World Values Survey

Introduction

The theories of economic development focus on role of natural factors, technology, learning and
human resources in analysis. The noneconomic factors such as culture, religion etc. are
considered as having indirect role on economic development and are usually not considered in
analysis. In much of the developmental work religion has been considered as playing a marginal
role Economic development of a country or region is normally considered to depend on its
economic factors. However in most of the cases a noneconomic factor is necessarily present and
plays an important role in the development process. The events of September 11, emergence of
ISIS and the clash in different parts of the world have highlighted how significant and powerful is
the linkage between religion and other aspects of life. The faith of people in different beliefs and
constructs pose both as a threat and opportunity for the society.

"For given religious beliefs, increases in church attendance tend to reduce economic development.
In contrast, for given church attendance, increases in some religious beliefs -- notably heaven, hell,
and an afterlife -- tend to increase economic development."

This quote has been taken from Robert Barro and Rachel Mc Cleary‟s work on cross- country
analysis of impact of religiosity on economic development.

The main complexity of the Hyper-modernity is Religion; means the main problem is to deal with
the religious behaviour of the community/society. We are living in a transitional society where
we are moving from period of industrialization to post-industrialization and from

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modernization to post-modernization. This poses greater challenge to understand the cultural

transition. Modern society has experienced major changes but the basic theme has not been
changed. Perhaps the reason for this is that the cultural transition takes several decades to
happen and we are so strongly associated with our culture that it’s not easy for the change to
happen.

This article focuses on the topic, perhaps which has been neglected in deciding the development
paradigm: the role of religion in economic development. We wish to evaluate the different aspects
of the complex relationship between religion and economic development.

Defining Key Concepts

Religion: The practice of believing in a ‘Supreme’ power which is defined differently by different
customs, traditions and values

GDP: according to the World Bank, gross domestic product is defined as the measures of the total
output of goods and services for final use occurring within the domestic territory of a given
country, regardless of the allocation to domestic and foreign claims.

Waves in WVS: These are the aggregate time period in which the world value survey has taken
place. The latest one is wave6 (2010-2014).

Consumption Expenditure: It is the spending of households, government, and others on

consumption of goods and services in a reference period.

Dependent Variable: The variable which is to be governed or determined in the model.

Independent variable: The variable/s which determine the value of dependent variable in the
model.

Dummy variable: it is a numerical variable used in regression analysis to represent the sub-
groups of the sample in the study. Normally 0 is assigned for the absence of an attribute and 1 is
assigned for the presence of the attribute.

Review of Literature

In a group consisting of developed, emerging and transition countries church attendance and
religious belief affect the growth rates of real per capita GDP for the decade- 1965-1975, 1975-
1985, and 1985–1995(Barro and McCleary). Belief in hell appears to positively contribute to
economic development (Barro and McCleary, 2003, 773 and McCleary and Barro, 2006, 67).
Church attendance has negative impact on Economic development. Islam and Confucianism has
positive influence on growth (Sala-i-Martin, Doppelhofer, and Miller, 2004). Growth is related
negatively to Jewish, Protestantism and Catholicism for the period 1970-1990 (Noland, 2005).
There is a two-way relationship between religion and development (Tawney, 1926). Kapp (1963)
and Mishra (1962) examined the relationship between Hinduism and Development in the context
of India. They concluded that the beliefs, values and customs of Hindu tradition negatively
affected the economic development for the country.

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Aim of the Study

The aim of the study is to find out the effect of Religion on Economic development

Hypothesis

Ho: There is no relationship between Religion and Economic Development

H1: There is relationship between Religion and Economic Development

Data

The analysis is done on secondary data of World Values Survey and World Bank. The data
whether the country is religious or not is collected from the Wave 6 (2010-2014) of the World
Values Survey. The data of ‘Religious Denomination’ is used for the purpose of deciding the
Religion of the country. In the raw format the data is available for different countries and the
percentage of population following a specific religion. For the purpose of analysis if more than
50% of the population of that country follows a specific religion that religion is considered to be
the religion of the country. The countries are listed based on several religions like Roman Catholic,
Protestant, Orthodox, Hinduism, Buddhism, and Muslim etc. For the purpose of analysis the
religion is divided into four subcategories of ‘Not Specific’, Roman Catholic, Muslim, Orthodox and
Others. These are labelled as ‘0’, ‘1’,’2’,’3’ and ‘4’ respectively. The ‘Not Specific’ category includes
the countries in which no specific religion is followed by the majority population and ‘Others’
category includes the religion which are followed in one or two countries only and has not been
separately categorized.

The data for GDP per capita and Consumption per capita is collected from World Bank. The data
for the two variables is used for the period from 2010- 2014 and the average of the five years is
used for the analysis.

Methodology

The relationship between Religion and Economic Development is analysed with the help of
secondary data. The following modelling has been done:

Modelling

lnGDPPCAVG = β0 + β1 lnConsumptionPCAVG + β2D1 + β3D2 + β4D3 + β5D4 + µ

where,

lnGDPPCAVG= Natural log of Average of Per Capita Gross Domestic Product for the period
2010- 2014

lnConsumptionPCAVG= Natural log of Average of the Per Capita Consumption Expenditure for the
period 2010- 2014

D1=1 if the religion of the country is Roman Catholic

= 0 otherwise (country has other religion)

D2=1 if the religion of the country is Muslim

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= 0 otherwise (country has other religion)

D3=1 if the religion of the country is Orthodox

= 0 otherwise (country has other religion)

D4=1 if the religion of the country is Others

= 0 otherwise (country has other religion)

µ= Error Term

Result and Analysis

Test of Normality:

The figure (figure 1) below shows that the data is bell-shaped and hence we can conclude that the
data is Normaly distributed.

Figure 1.
Test of Autocorrelation:

The value of Durbin-Watson test is used to detect the Autocorrelation. As we can see from the
below table (Table 1) that the value of Durbin-Watson is very close to 2 we can say that there is
no problem of Autocorrelation.

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Model Summaryb
Model R R Square Adjusted R Std. Error of Durbin-
Square the Estimate Watson
1 .649a .421 .360 .99490 1.953
a. Predictors: (Constant), Others Dominant Country, lnCon, Orthodox Dominant
Country, Religious Catholic Dominant Country, Muslim Dominant Country
b. Dependent Variable: lnGDP
Table 1

Test of Multicollineariy:

The test of muticollinearity is done by taking one of the independent variables and doing the
collinearity statistics with the other independent variables. The same is done for each
independent variable. The result of the collinearity statistics is show below in the five tables.
Coefficientsa
Model Collinearity Statistics
Tolerance VIF
Muslim Dominant Country .720 1.389
Religious Catholic .735 1.361
Dominant Country
1
Orthodox Dominant .818 1.222
Country
Others Dominant Country .818 1.222
a. Dependent Variable: Average of Consumption per Capita

Table 2
Coefficientsa
Model Collinearity Statistics
Tolerance VIF
Religious Catholic .908 1.101
Dominant Country
Orthodox Dominant .926 1.080
1 Country
Others Dominant Country .928 1.078
Average of Consumption .976 1.025
per Capita
a. Dependent Variable: Muslim Dominant Country

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Table 3.

Coefficientsa
Model Collinearity Statistics
Tolerance VIF
Orthodox Dominant .906 1.103
Country
Others Dominant Country .909 1.100
1
Average of Consumption .935 1.070
per Capita
Muslim Dominant Country .852 1.173
a. Dependent Variable: Religious Catholic Dominant Country
Table 4.

Coefficientsa
Model Collinearity Statistics
Tolerance VIF
Others Dominant Country .862 1.159
Average of Consumption .927 1.079
per Capita
1
Muslim Dominant Country .774 1.292
Religious Catholic .807 1.239
Dominant Country
a. Dependent Variable: Orthodox Dominant Country

Table 5

Coefficientsa
Model Collinearity Statistics
Tolerance VIF
Average of Consumption .923 1.084
per Capita
Muslim Dominant Country .772 1.295
1 Religious Catholic .806 1.241
Dominant Country
Orthodox Dominant .859 1.165
Country
a. Dependent Variable: Others Dominant Country
Table 6

From the above tables (Table 2, Table 3, Table 4, Table 5 and Table 6) we can see that the Variance
Inflation Factor is very small. The predictor variables or independent variables are said to be
correlated if the Variance Inflation Factor is more than 10. The tolerance is reciprocal of Variance
Inflation Factor. So, any of the two values can be used for the detection of multicollinearity. As the
value of Variance Inflation Factor is small in all the cases there is no problem of muticollinearity.

Test of Heteroscedasticity:

The scatter plot of the data showed that the data was heteroscedastic. To remove the problem of
heteroscedasticity we took the natural log of the Average of Per Capita Gross Domestic Product

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for the period 2010- 2014 (lnGDPPCAVG) and Natural log of Average of the Per Capita Consumption
Expenditure for the period 2010- 2014 (lnConsumptionPCAVG)

Regression Analysis:

The result of the regression analysis is depicted in the table below (Table 7). The R square value
is .421 which can be considered as a small. The adjusted R square value is .360 which shows that
the model is mis-specified. There may have the problem of misspecification in the units of variable
taken or we can also say that this behavioural aspect cannot be fully captured. Instead we can
give theoretical explanation for such phenomenon on the basis of our observation and the results
obtained from the model.
Model Summaryb
Model R R Square Adjusted R Std. Error of
Square the Estimate
1 .649a .421 .360 .99490
a. Predictors: (Constant), Others Dominant Country, lnCon,
Orthodox Dominant Country, Religious Catholic Dominant
Country, Muslim Dominant Country
b. Dependent Variable: lnGDP
Table 7

From the table 8 we can see that the coefficients have negative value except the lnCon value. This
shows that the Consumption has positive influence on the economic development whereas the
religion has negative effect on the economic development. The negative coefficients show that
religion acts as a hurdle in the economic development. Further the p-value (Sig.) in the table
shows that it is significant for lnCon (.001), Muslim Dominant Country (.007) and Others
Dominant Country (.013) at 5% level of significance. The Religious Catholic Dominant Country
becomes significant (.066) at 10% level of significance. Therefore, in all the four cases (ln Con,
Muslim Dominant Country, Religious Catholic Dominant Country and Others Dominant Country)
the null hypothesis that theses religions have no effect on the economic development is rejected
and the alternative hypothesis that religion has effect on economic development is accepted. In
the case of Orthodox Dominant Country the p-value is insignificant (.356) so no generalized
predictions can be made about the orthodox dominant country.
Coefficientsa
Model Unstandardized Coefficients Standardized T Sig.
Coefficients
B Std. Error Beta
(Constant) 2.140 2.158 .992 .326
lnCon .289 .081 .421 3.562 .001
Muslim Dominant Country -1.093 .386 -.389 -2.828 .007
1
Religious Catholic Dominant Country -.718 .381 -.242 -1.882 .066
Orthodox Dominant Country -.455 .488 -.116 -.932 .356
Others Dominant Country -1.256 .486 -.320 -2.582 .013
a. Dependent Variable: lnGDP
Table 8

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Conclusion

The analysis shows that religion is a factor in determining the economic development but the
effect is small. The effect of religion on economic development is negative; this shows that religion
acts as a hindrance on economic development. The hindrance may be in the form of social
customs, taboos and other religious practices associated with religion. The restrictions imposed
by religion on individuals and society hinder the individual and society to take economic activities
which promote growth. The role of religious institutions and leaders have been little understood
and insufficiently explored. The religion and economic development has been considered as two
extremes based on preconceived ideas and misinformation. There is enough scope for dialogue
between the two and a reconciliation of the two extremes. There is need to move from strict
compartmentalization to a cross disciplinary approach which highlights the role of social and
cultural institutions in explaining the economic development.

References

1. Hargrove, B. (1988). Stable URL : http://www.jstor.org/stable/3711142 Linked

references are available on JSTOR for this article : Religion , Development , and Changing
Paradigms *. Sociological Analysis, 49, 33S–48S.

2. Marshall, K. (2001). Development and Religion : A Different Lens on Development

Debates. Peabody Journal of Education, 76(3/4), 339–375.

3. Montgomery, J. (1997). Toward a Joint Theory of Religion and Economic Development :

Comment Author ( s ): James Montgomery Source : Journal of Institutional and Theoretical
Economics ( JITE ) / Zeitschrift für die gesamte Staatswissenschaft , Vol . 153 , No . 1 , The
New Instit. Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift Für
Diegesamte Staatswissenschaft, 153(1), 72–75.

4. PALANCA, E. H. . (2017). Religion and Economic Development Author ( s ): ELLEN H .

PALANCA Source : Philippine Studies , Vol . 34 , No . 2 ( Second Quarter 1986 ), pp . 162-
180 Published by : Ateneo de Manila University Stable URL :
http://www.jstor.org/stable/42633590, 34(2), 162–180.

5. Rao, M. S. . (1969). Indian Sociological Society Religion and Economic Development

Author ( s ): M . S . A . Rao Published by : Indian Sociological Society Stable URL :
http://www.jstor.org/stable/23618700. Sociological Bulletin, 18(1), 1–15.

6. World Bank Data

7. World Values Survey Data

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