Religion and Political Economy in an International Panel Citation Barro, Robert J. and Rachel M. McCleary. 2002. Religion and political economy in an international panel. NBER Working Paper 8931. Published Version http://dx.doi.org/10.3386/w8931 Permanent link http://nrs.harvard.edu/urn-3:HUL.InstRepos:3221170 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of-use#LAA Share Your Story The Harvard community has made this article openly available. Please share how this access benefits you. Submit a story . Accessibility Religion and Political Economy in an International Panel* Rachel M. McCleary and Robert J. Barro Harvard University November 2003 Abstract Two important theories of religiosity are the secularization hypothesis and the religion- market model. According to the former theory, economic development reduces religious participation and beliefs. According to the latter theory, religiosity depends on the presence of a state religion, regulation of the religion market, suppression of organized religion under Communism, and the degree of religious pluralism. We assess the theories by using survey information for 61 countries over the last 20 years on church attendance and religious beliefs. In accordance with the secularization view, overall economic development—represented by per capita GDP—tends to reduce religiosity. Moreover, instrumental estimates suggest that this link reflects causation from economic development to religiosity, rather than the reverse. The presence of an official state religion tends to increase religiosity, probably because of the subsidies that flow to organized religion. However, in accordance with the religion-market model, religiosity falls with government regulation of the religion market, Communist suppression, and a reduction in religious pluralism. Although religiosity declines overall with economic development, the nature of the interaction varies with the dimension of development. For example, religiosity is positively related to education and the presence of children and negatively related to urbanization. *This research was supported by grants from the National Science Foundation and the John Templeton Foundation. We have benefited from comments by Gary Becker, Francesco Caselli, Mark Chaves, Ed Glaeser, Charles Harper, Jason Hwang, Laurence Iannaccone, Greg Mankiw, James Montgomery, Thomas Osang, Robert Woodberry, and participants in several seminars and classes. Interactions between religion and political economy involve two directions of causation. On one side, a nation’s economic and political developments affect its religiosity. In this view, the dependent or endogenous variables are the extent of individual religious participation and beliefs and the role of organized religion in a country’s political, legal, and social structure. On the other side, the nature and extent of religiousness influence economic performance. From this perspective, religious activities and beliefs are independent or exogenous variables. In a previous study (Barro and McCleary [2003]), we used cross-country data to investigate the effects of religious participation and beliefs on economic growth. In this study, we examine the reverse effects, that is, how religiosity responds to economic development and other variables. Two important theories of religiosity are the secularization hypothesis and the religion-market model. According to the former theory, economic development reduces religious participation and beliefs. According to the latter theory, religiosity depends on government intervention, including the establishment of state religion, regulation of the religion market, and the suppression of organized religion, such as under Communism. Also important in this theory is the degree of religious pluralism, measured by the heterogeneity of religions represented in a country. We begin with a sketch of the two types of theories. Our discussion focuses on how economic variables, religious doctrines, and government policies influence religious participation and beliefs. Then we discuss empirical measures of religiosity, based on international surveys aggregated to the country level. Finally, we use cross-country regressions to analyze how religiosity reacts to economic and demographic variables; government institutions, including the presence of a state religion, regulation of the religion market, and Communist oppression; and to the composition of religions. Our interpretations of these results combine ideas from the secularization hypothesis and the religion-market model. As part of this analysis, we use instrumental variables to isolate the causation from an overall indicator of economic development—per capita GDP—to religion, rather than the reverse. I. Determinants of Religiosity A. Secularization and Related Hypotheses Many theories that seek to explain religiosity rely on the secularization hypothesis.1 According to this view, economic development causes individuals to become less religious, as measured by church attendance and certain religious beliefs. The beliefs refer to God, an after- life, heaven, hell, and so on, and may also refer to tendencies of people to characterize themselves as religious. The secularization hypothesis also predicts that economic development causes organized religion to play a lesser role in political decision-making and in social and legal processes more generally.2 One manifestation of this force is a tendency for official state churches to be abandoned as countries develop. As the state bureaucracy matures and rule of law begins to function, a constitution is typically put in place, and formal religion tends to be separated from government. As examples, countries such as Mexico, Turkey, Japan, and South Korea dropped their established state churches many years ago. Ireland is a more recent example of this trend. The secularization hypothesis remains controversial, and an important aspect of the present study is to assess its empirical validity in modern data.3 1 The hypothesis can be viewed as a part of modernization theory, whereby economic development leads to an array of changes in social and political institutions. Modernization theory, as discussed in Bell (1973) and Inglehart and Baker (2000), relates to the economic determinism of Karl Marx; see, for example, Marx (1913, pp. 11-12). The secularization hypothesis appears in Weber (1930), but he credits the idea to John Wesley—see Wesley’s 18th century essay “On the Use of Money” in Wesley (1951). For more recent discussions, see Wilson (1966), Berger (1967), and Martin (1978). 2 This idea appears in Weber (1930) and has been extended in Wilson (1966), Berger (1967), and Chaves (1994). 3 For discussions of evidence contrary to the hypothesis, see, for example, Finke and Stark (1992) and Iannaccone and Stark (1994). 2 Secularization theories tend to stress particular aspects of economic development, such as increased education or urbanization or life expectancy or decreased fertility. However, the predicted sign of the effect on religiosity tends to vary across these aspects of development. For example, more education has different implications from more urbanization. With respect to education, one argument for secularization is that more educated people are more scientific and are, therefore, more inclined to reject beliefs that posit super-natural forces. Put another way, if religious beliefs are based primarily on ignorance, more educated persons would tend to be less religious. This viewpoint accords with Hume (1757, pp. 182-83) and Freud (1927), who argued that religion derived from irrational human fears and anxieties. They viewed religion as a mechanism for people to ward off forces that they could not rationally explain. According to this view, increased education should be accompanied by reductions in church attendance and religious beliefs. A contrary argument is that religious beliefs, like many theoretical hypotheses, require abstract thinking or “faith.” If highly educated persons are more capable of the speculative reasoning needed for intellectual inquiry, they may also be more able or willing to make the abstractions needed to support religious beliefs. From this perspective, more educated persons might be more religious.4 Sacerdote and Glaeser (2001) provide a different reason for why increased education would spur church attendance. They argue that education increases the returns from networks and other forms of social capital. Hence, they predict that more educated persons would participate more in various group activities, including church services. However, in this approach, church attendance bears no special relation to religious beliefs—this attendance is modeled as just one of many ways to build social capital. This analysis predicts no clear relation 4 We are grateful to Greg Mankiw for this argument. 3 between education and religious beliefs, except in so far as more frequent church attendance instills greater beliefs. Models that focus on the role of salvation and the after-life,5 such as Azzi and Ehrenberg (1975), predict that people would become more religious as they age and, hence, get closer to death. Similarly, for a given age, increased life expectancy would decrease religiosity. These conclusions follow if salvation depends on cumulated religious effort, including church attendance and prayer, during one’s lifetime. In this case, because of discounting of future expenditures, it would be desirable to postpone “outlays” until later in life. The arguments about age and life expectancy are stronger if salvation corresponds to a stage toward the end of life, as in Hinduism, or if the religious doctrine provides little incentive to avoid wrongdoing when young, as in Catholicism. Weber (1930) observed that the Catholic religion allowed for a continual cycle of sinning and absolution.6 Therefore, people have an incentive to accumulate sins early in life and then repent as they get closer to death. Weber argued that this pattern did not apply to Calvinist Protestantism, which dictated daily moral conduct throughout one’s life as the only means of finding a sign that one had been chosen.7 Muslim doctrine is similar to Catholic doctrine in that redemption is possible, even in Purgatory, by believing in Allah and ascribing to the Five Pillars of Islam. Thus, an older 5 In religions outside of Judaism-Christianity-Islam, the role of an after-life is less clear. For example, Hinduism does not have an after-life or heaven, per se, but does allow for reincarnation and the potential to reach eventually a state of perfection or enlightenment. In terms of incentives, the potential for achieving this enlightenment can play a role analogous to that of an after-life. Buddhism is, in many respects, similar to Hinduism, but without the stress on physical reincarnation. For further discussion, see McCleary (2003). 6 This cycle is consistent with the old Catholic practice of selling dispensations to sinners. Luther’s dissatisfaction with the corruption of this regime was an important force behind the Protestant Reformation. See Ekelund, Hebert, and Tollison (2002) for an economic analysis of the Reformation. 7 According to Weber (1930, p. 117), “The God of Calvin demanded of his believers not single good works, but a life of good works combined in a unified system. There was no place for the very human Catholic cycle of sin, repentance, atonement, release, followed by renewed sin.” 4 person—even one that has already been condemned—can always rise above past sins. Hence, the Muslim religion also motivates devout behavior especially at advanced ages. In Buddhism, a person is continually searching for knowledge to acquire enlightenment and, therefore, has no incentive to defer religious investments. Hinduism—out of which Buddhism originated—is less clear-cut, because lay persons are supposed to focus their pursuit of individual salvation in the last stage of their lives. However, earlier stages entail religious obligations that contribute indirectly to a person’s ultimate enlightenment. Economic reasoning predicts that increases in the cost of religious activities would, ceteris paribus, reduce these activities. For example, economic development raises the value of time, as measured by market wage rates. Hence, development implies a rising opportunity cost of participating in time-intensive activities, such as church services and prayer. On this ground, development tends to reduce church attendance and other religious activities. However, this argument assumes that the enhanced productivity that applies generally in the economy (as signaled by rising wage rates) is not accompanied by similar productivity gains for time spent in church or at prayer. Aging can also affect the cost of churchgoing, especially for the sick and elderly. On this ground, the prediction is that people who are ill or very old would attend church relatively little and, perhaps, engage in relatively more prayer at home. These effects offset the influences mentioned before about a person’s response to being relatively close to death. However, despite the relatively low rates of church attendance, the sick and elderly may hold strong religious beliefs, that is, they may invest heavily in personal “spiritual capital.” Children tend to attend church relatively often because their costs of attendance are comparatively low. This effect is reinforced because the productivity of attendance—in the 5 sense of the beliefs engendered through “indoctrination”—is likely to be high at young, formative ages. This effect offsets the regular age influence discussed earlier. Moreover, the incentive to bring children to church tends to induce greater church attendance of adults, who are likely to want to participate in the process of inculcating their children and in ensuring that religious values and traditions are transmitted across generations. Urbanization is another aspect of economic development that has been argued to have a strong negative effect on religiosity. One reason is that church services have to compete in urban areas with many other forms of leisure activities, such as museums, theatres, and political organizations. A possible explanation for this urban/rural pattern is that economies of scale are important for museums and many other social organizations but are less significant for churches. Since a community of believers can meet in a home, even sparsely populated rural towns can sustain a local congregation. Another argument is that rural areas are dominated by agriculture, which is especially prone to the uncertainties of nature. Greater church attendance in rural areas may then reflect a greater demand for religion as a way to cope with these uncertainties. Wilson (1966) and Berger (1967) continued a theme from Weber (1930) by arguing that economic development leads to the secularization not only of individuals but also of political and social institutions, including the churches themselves. On the political level, organized religions would be predicted to play a smaller role in governance and legislation. Notably, official state churches would become less frequent, and separation between church and state would become more common. Organized religion would be predicted to have a decreasing influence over regulations involving such matters as market transactions, marriage, divorce, birth control, abortion, and euthanasia. Church services would be predicted to become less demanding, for example, by abandoning the use of a “foreign” language, requiring smaller outlays of time by 6 participants, reducing elaborate rituals, and requiring less stringent practices by adherents. Part of this process, according to Weber (1930) and Troeltsch (1931), is that religious sects—to be popular and attract adherents—tend to become less other-worldly and stringent. B. Religious Competition and the Religion-Market Model Another argument by secularization theorists is that religiosity is fostered by the existence in a country of a monopoly provider of religion, for example, by the presence of an established state church. If competition existed among churches, much of this competition would take the form of debunking the religious beliefs practiced by others. If the beliefs were based primarily on superstition and ignorance, the argument is that these beliefs could not withstand the competition. Hence, according to this view, the demise of official state churches— predicted to be a part of the secularization process—would tend to foster the decline in individual church attendance and beliefs. Some of this argument appears in Smith (1791, Book V, Article III) and is attributed partly to Hume (1757). However, Smith also notes that monopoly providers of religious services tend—as monopolies do generally—to become non-innovative and indolent. He particularly observed this behavior in the Catholic Church and the Church of England. Specifically, he argued that the behavior of state religions reflected the lack of strong connection between financial support and the provision of good service to “customers.” Under monopoly, state religions tended to lose the aspects of religious devotion that were relevant to people practicing their faith. Moreover, state religions tended to become a religion for elites, and—to the extent that the clergy itself became an elite group—of elites. Consequently, instead of focusing on the religious needs of their congregants, the clergy tended to engage in secular activities, including politics, the arts, and 7 intellectual learning. In other words, having reached a level of affluence and a substantial degree of disconnection between income and service quality, the clergy were not motivated to provide a high level of customer satisfaction. Religions, such as Protestantism, whose clergy depend directly on customer contributions must continually address the needs of congregants to stay in business. Hence, new religious movements or “upstarts,” such as the Lutherans and Calvinists during the Reformation in Switzerland and Germany, the Methodists and Quakers in 18th century England, and Evangelical Protestants today in the United States, Latin America, and Asia, are able to enter the religion market by providing better service to members. Similarly, Ekelund, Hebert and Tollison (2002) argue that the medieval Roman Catholic Church lost popularity because of its monopolistic pricing practices and because of its inability to adapt to changing socio-political conditions, especially the decline of feudalism. The discontent with the Catholic Church fostered the popularity of Protestantism among the poor and the royalty. In response to this type of entry, the established state religions sometimes resorted to coercion, repression, and violence to maintain their financial, political, and social arrangements. The Inquisition in Spain in the late 1500s is an extreme example. Religion, Smith argued, is more vibrant where there is a disassociation between church and state, because the absence of state religion creates a climate for competition among religion providers (Smith [1791, Book V, Article III]). By showing no preference for a particular religion, but rather permitting any religion to be freely practiced, Smith argued that the state would create an open market in which rational discourse among religious groups generated a public display of “good temper and moderation.” In an open market, Smith predicted a continual subdividing of sects so that a pluralistic structure would emerge in which no religion dominated. 8