Does religion impede economic growth?

In the Wealth of Nations, Adam Smith promoted the platitude that religious beliefs and economic activities are rational choices. As in any profit-making activity, people respond to religious costs and benefits in a predictable and observable manner.

John Wesley, a theologian, and the founder of Methodism saw the two-way causation between religion and economic performance.  In 1744, he passionately preached, “Gain all you can; Save all you can; Give all you can.”

In a 2003 NBER (National Bureau of Economic Research) working paper, “Religion and Economic Growth”, Harvard economists Robert Barro and Rachel McCleary observed: “For given religious beliefs, increases in church attendance tend to reduce economic growth. In contrast, for given church attendance, increases in some religious beliefs — notably heaven, hell, and afterlife – tend to increase economic growth.”  

Using six international survey data between 1981 and 1991 for 59 countries that are rich and primarily Christian — and measuring religiosity by church attendance and religious beliefs, the authors concluded that overall religiosity tends to decline with an increase in per capita GDP. 

In her March 2008 paper, McCleary argues that economic development causes religion to play a lesser role in the political process and in policy making as well as in social engagements (e.g.: marriages, friendships, etc.). Indicators Wesley’s first causal direction, McCleary uses four indicators: education, value of time, life expectancy, and urbanisation— reflecting the influences of economic expansion on religion.

EDUCATION: With increased level of education, people look for science to explain natural phenomena while taking refuge in religion for explaining non-rational happenstances which are supernatural and psychological in nature. As a result, education may have a negative effect on religion - an inverse relationship. 

VALUE OF TIME: In a growing economy “time is money”. Thus, as the economy expands the opportunity cost of participation in time-intensive religious rituals rises— allowing less time and hence less involvement in religious rituals. Older people in all societies, for example, with a low value of time, tend to become more religious.

LIFE EXPECTANCY: Longevity has markedly improved both in absolute terms and percentage-wise in developing countries since the 1950s. Available evidence shows a trend suggesting that with people living longer, participation in certain religions will be low and then rise as the population ages.

Urbanisation: In urban areas religious activities compete with other desirables such as going to movie theatres, musical concerts, museums, parks, and recreational sites, watching sports in person and other recreational activities. Although not by choice, daily traffic congestion in big urban areas inflicts a heavy toll on time leaving less of it for everything else.  

In her paper, McCleary observes, “For a given level of religious participation, increases in core religious beliefs — notably belief in hell, heaven, and an afterlife — tend to increase economic growth”. This is entrenched in the cliché that religious beliefs raise productivity by inculcating honesty, work ethic, and thrift.  In contrast, for given religious beliefs, increases in religious activities tend to lessen economic growth. This reflects the time and resources spent in religious sector as well as adverse effect of economic regulation, for example, restrictions on markets for credit and insurance. 

Examination of the four separate episodes of the World Values Survey (WVS: 1981; 1990 –1991; 1995–96; 2001) reveal that belief in hell is strong while the belief in heaven is weaker. Based on monthly attendance and belief in hell, it is found that for given levels of religious beliefs, notably in hell, heaven, and an afterlife, the effect of greater religious participation is to reduce economic growth.

In Muslim countries, the survey revealed high levels of belief in hell: Iran, 98 per cent; Indonesia, 99; Pakistan, 94; Turkey, 94; Nigeria, 94. However, Pakistan with 91 per cent showed the highest level of participation in religious activities. 

The WVS further confirms that Muslims are more likely than Catholics, Hindus, Buddhists, and Protestants to profess a belief in heaven and hell. Such belief tends to play a larger role in Islam than in other religions.

Now the ultimate question:  is Islam a drag on economic growth?

Today Muslims are relatively poor regardless of the comparison done to the worldwide mean at either the individual or national level — and rightly or wrongly, there is long line of erudition that attributes this situation to Islam itself.

In a 2003 paper Marcus Noland (Institute for International Economics, Washington DC) argues that the existence of uniquely Islamic economic practices such as the prohibition on riba (interest) or the injunction to pay “zakat” could serve as the causal links between theological belief and economic performance at the macroeconomic level. Analysing the WVS data, Guiso et al. (“Religion and Economic Growth”, Journal of Monetary Economics, 2003) characterised Islam as being negatively associated “with attitudes that are conducive to growth” and — among adherents to the world’s major religions— Muslims as being the most “anti-market.” 

However, in Noland’s analysis these negative assessments of Islamic economic regulations were not borne out relative to the “other religions” excluded category. He underscored three factors: intellectual or theological, sociological, and institutional— rationalising the relative economic underperformance of Islamic societies over long periods.

Obviously, the examples of Indonesia, Turkey, and Malaysia, dispute the claim of underperformance of Muslim countries because of the influences of Islam. Even focusing solely on the Middle East, scrappy data from the 1950s, and more comprehensive data from the 1960s and later decades indicate— based on per capita income growth or total factor productivity growth— that the performance of this region was remarkable. 

In a more rigorous statistical analysis based on Muslim and non-Muslim share of population in predominantly Muslim countries, Noland found no support for the notion that Islam is a drag on growth— if anything, his results reinforced the notion that the impact of Islam of economic performance is positive. 

Pervasive corruption that goes unabated in many Muslim majority countries may be the precursor to low growth and continuing poverty. The 2022 Corruption Perceptions Index (CPI) clearly shows there is no Muslim country ranked in the top 20 (of being least corrupt) of the 180 countries surveyed. United Arab Emirates and Qatar with the ranking of 27 and 40 were ranked in top 50. The most conservative Muslim countries such as Saudi Arabia (97.1 per cent Muslim), Iran (99.4 per cent Muslim), and Yemen (99.1 per cent Muslim) are ranked 54, 147 and 176 respectively (Bangladesh tied with Iran at 147). If these examples are not depressing enough, then look at Maldives with 100 per cent Muslim population, the country is ranked 85 in CPI.

Most of the core values of western countries, such as transparency, integrity, accountability, freedom, human rights, and justice also constitute Islamic values. The 19th century Egyptian scholar and jurist, Muhammad Abduh, once said, “I went to the West and saw Islam, but no Muslims; I got back to the East and saw Muslims, but not Islam.” A study of 208 countries and territories by Professor Hussain Askari of George Washington University entitled, “How Islamic are the Islamic Countries”, showed that most countries that apply Islamic principles in their daily lives are not the ones that are traditionally Muslim. What these scholars are suggesting is that Muslims in most countries are Muslims by name – not by actions and deeds and fail to live up to the dictates of Islam. 

Finally, one may unarguably suggest that if it were not for pervasive corruptions in all Muslim majority countries, probably no one would have questioned the influence of Islamic practices on economic performance – believe it or not.

Dr. Abdullah A. Dewan, formerly a physicist and a nuclear engineer at BAEC, is professor of economics at Eastern Michigan University, USA. |
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