Religious Freedom, Interference in Religion, and … Freedom, Interference in Religion, and Economic...

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Religious Freedom, Interference in Religion, and Economic Growth:

An Empirical Examination across Countries

Ilan Alon, Shaomin Li, and Jun Wu*

*Authors’ names are listed alphabetically

Ilan Alon is Cornell Professor of International Business at Rollins College. He is Editor-in-Chief

of the International Journal of Emerging Markets. His publications have appeared in Harvard

Business Review, Management International Review and Journal of International Marketing,

among others.

Shaomin Li is Eminent Scholar and Professor at Old Dominion University. He has published in

Harvard Business Review and World Development, and is the author of Managing International

Business in Relation-based versus Rule-based Countries as well as thirteen other books.

Jun Wu is Assistant Professor at Savannah State University. Her publications have appeared in

Management International Review and International Business Review, among others, and she

serves as Associate Editor of the journal series International Marketing and Management

Research.

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Abstract

Freedom is generally regarded as good for economic growth. Studies have shown that economic,

political and religious freedoms generally promote economic development. Using an

institutional approach, we show that interference in religion (or lack of religious freedom) can be

broken into social hostilities (soft institutions) and governmental restrictions (hard institutions),

and that the impacts of both are varied on economic growth. Testing the role of religion and

religious freedom (or lack thereof) over a large cross-section of countries, we find that greater

religious diversity, lower social hostilities towards religion, but some government limitations,

may optimally promote economic development.

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The continued and from time to time escalating violence and conflicts that are religion-related

pose immediate questions to scholars of political economy regarding the role of religion,

religious freedom and social development, democratization, and, especially, economic

development. It is fair to say that any phrase that includes the word “freedom” tends to convey a

positive meaning, such as political freedom or economic freedom. Similarly, the term “religious

freedom” is regarded as a desirable goal for all societies and a positive force in social

development. However, when scholars and policy makers advocate religious freedom, which is

commonly defined as freedom to believe, practice, and act in accordance with one’s faith, few

mention the need for government restrictions on certain religious activities that may have

possible negative consequences, for example, the potential for clashes with those of other faiths,

which may result in violence, human dislocations, or negative economic impacts. In this study,

we use newly available data on religious freedom and interference on religious activities to

evaluate how different dimensions of religious freedom and lack thereof affect economic

performance across countries. In light of an examination of these data, we discuss how the

normative stance on religious freedom and government interference on religion should be re-

evaluated.

How Religion Affects the Economy

Ever since the publication of Max Weber’s seminal work The Protestant Ethic and the Spirit of

Capitalism, the impact of religion on economic growth has been at the center of economists’

efforts to understand how culture affects economic growth.1 In general, there are three

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perspectives on how religion affects economic growth. The first is the Weberian view, which

argues that religious beliefs foster certain traits that are conducive to economic growth. These

traits may include ethics encompassing working hard, practicing thrift, and being honest. The

second perspective can be termed as the social capital approach, which contends that the social

networking resulting from formal religious gatherings create social capital, which in turn

contributes to economic performance. The third view treats religion in a more comprehensive,

sui generis perspective, arguing that all religions are spiritual, focus on the afterlife, and place

great emphasis on god, heaven, and hell. Formal religious activities are a means to teach and

preserve these beliefs, which act as a force to provide incentives to followers to behave in certain

ways, such as to work hard, practice frugality, and to be honest, so as to secure a desirable

afterlife. Whereas the former two approaches regard religion as a positive force in terms of

economic growth, the sui generis view recognizes that frequent participation in formal religious

activities diverts time away from economically productive activities and may thus have a

negative effect on economic growth.2 This suggests that religions can have either positive or

negative effects on the economy. As a result, the impact of religion is both intriguing and

complex. If religion’s effect on economic development is largely positive, then as religious

freedom increases, more religions will flourish and, as a consequence, economic growth will

accelerate. Conversely, if religion is a drag on the economy, then limiting religious freedom will

curtail the growth of religions, which in turn will contribute to economic growth.

What We Know about the Effects of Religious Freedom on the Economy

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Thus far, there have been relatively few studies on how religious freedom affects economic

growth. In an article for the Journal of Democracy, Alfred Stepan argues on behalf of the

reciprocal needs of both religious freedom and democracy, which he dubs as the “Twin

Tolerations.”3 Freedom of religion requires political freedom and political freedom requires

freedom of religion in order to develop vibrant, multi-voice democracies. Alon and Chase

examine the possible relationships that exist among economic freedom, political freedom,

religious freedom, and individual prosperity, measured by purchasing power parity per capita

GDP.4 Religious freedom is shown to contribute to prosperity above and beyond its

contributions of political and economic freedoms in a large cross-section of society. The above

findings beg the following questions: why and how does religious freedom affect economic

prosperity?

Several pathologies have been suggested and discussed at the Berkley Center for Religion, Peace

and World Affairs of Georgetown University, whose research team is at the forefront of studies

on this topic.5 We will briefly summarize them below. A major argument is from the

institutional perspective. Religious freedom correlates closely with civic, political, and economic

freedoms, making it an integral building block of what we consider a liberal democracy.6

According to Douglass North, institutions can be divided into formal and informal governing

mechanisms.7 Religious freedoms, for example, can be divided, on the one hand, into formal

government regulations and, on the other hand, into informal mechanisms, such as social

attitudes toward religious minorities. This distinction is important with respect to religious

freedom because the formal mechanisms, i.e., government policies and laws, can be shaped

either by the informal mechanisms, such as the culture, or can shape the informal mechanisms.

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Furthermore, the two mechanisms may clash, causing, among other things, social frictions and

possibly violence, which will be detrimental to economic growth.

With respect to institutional similarities, religious freedoms can contribute to economic growth

through trade and investment. Dolanski and Alon show how religious freedom and religious

diversity affect foreign direct investment.8 Through gravity models, economists have been able

to show that countries that are institutionally similar are more likely to trade with and invest in

one another.9 Religious freedom is a foundation for the institutional similarities. For example,

the 1998 International Religious Freedom Act was passed by the U.S. Congress to promote

religious freedom in U.S. foreign policy. According to this Act, which invokes international and

constitutional law as a justification, the United States may apply sanctions on countries that

engage in religious persecution. According to Joseph Lieberman (D-CT), the United States is

justified in applying the law “because of a belief that no government has the right to tell the

people how to worship and certainly not the right to discriminate against them or persecute them

for the way they chose to express their faith in God.” As the world’s largest investor and

provider of the most foreign aid, the United States puts economic pressure on countries that do

not complying with minimal standards of religious liberty.

Religious freedom promotes religious plurality and diversity. Diversity fosters creativity,

innovation, entrepreneurship, and, in turn, economic development. Societies that welcome

people of diverse backgrounds, including diverse religious backgrounds, tend to attract more

talent. The former Soviet Union is a case in point. In the Soviet Union, there was a quota on the

number of Jews who were allowed to enter elite universities and government bodies, and

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religious minorities suffered repression, leading to suboptimal allocations of human capital

resources. Although not an official policy, discrimination against the Jews was socially

acceptable. Such discrimination made Jews feel unwelcomed and not fully integrated into the

society. As a result, when the Soviet Union opened under Mikhail Gorbachev, millions of

educated Jews fled to Western Europe, America, and Israel. This massive emigration

represented a brain drain for the Soviet Union and a brain gain for the receiving countries. The

success story of Israel’s “start-up nation” was partly due to the influx of educated immigrants

with technical and engineering degrees from the Soviet Union. Similarly, when the Puritans left

England due to religious persecution, they took with them gifts, arts, and products of the

Commonwealth to the detriment of the Commonwealth and to the benefit of the new colony.10

Religious freedom promotes religiosity because competition among religious associations

increases the market for religious services. The marketization of religion means that more

segments of a society are provided with a larger set of options to express their consciousness.

Regardless of the type of religion, at its core religiosity preaches morality, doing the right thing,

and charity.11 Religions typically ask people to delay immediate gratification for salvation.

Religious organizations teach people business skills that can be transferred to alternative

economic uses.12 Being accountable to a higher being also means that the threshold level for

appropriate behavior, fairness, and justice may be higher than the minimum as mandated by law.

Thus, religiosity may contribute to a more just and sustainable economic development.

In short, existing research seems to concur that religious freedom promotes economic activity,

both directly through institutions and indirectly through religious diversity and religiosity. A lack

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of religious freedom can reduce the entrepreneurial and economic activities that result from the

traits nurtured by religious beliefs.13

Robinson has equated religious freedom with private property or private enterprises. In this way,

spiritual capital is as important an institutional predictor of economic wealth as financial, natural,

and human capital. He concludes that economic ruin will come to those nations that seize

property or exile citizens due to their religious beliefs. He thus suggests: let history be a lesson

and let us choose freedom and toleration in all areas of social life, including liberty of

consciousness, so that the “invisible hand” and prosperity can symbiotically co-exist.14

Despite the optimism regarding the positive impact of religious freedom on economic growth

and the positive connotations of “freedom” in public policy, the real impact of religious freedom

is more nuanced. The main weakness of existing studies on religious freedom and economic

growth is the failure to recognize that religious freedom has various dimensions and that an

absence of government regulation of religious freedom may have a detrimental effect on

economic activities.

The Effect of Religious Freedom on the Economy Is a Double-Edged Sword

In this study, we use recently available data on religious freedom to expand upon the institutional

approach and to examine the different dimensions of religious freedom, such as interference in

religion, and how they may affect economic growth across a broad cross-section of countries.

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Our findings shed light on the roles of the various dimensions of religious freedom, how they co-

act with religion to either enhance or to reduce economic performance.

We argue that religions exert both positive and negative effects on economic performance. The

positive effects are produced by traits nurtured by religious beliefs, such as a work ethic, thrift,

and honesty, as well as social networking resulting from religious gatherings. The negative

effects, which are less commonly discussed in the literature, may include frequent religious

activities that divert the attention of the participants from economic activities15 or result in

violent conflicts between religions that incur economic costs and destroy economic value. We

further argue that religious freedom and lack thereof may co-act with religion to affect economic

performance.

What is religious freedom? Most of scholars define it as the right to believe in and practice one’s

religion. For example, Gill and Shah define religious freedom as “the freedom to engage in

public life (as well as private life) on the basis of one’s religious convictions and identity.”16 The

authors go on to further define religious freedom in terms of cost and efficiency: “any increase in

the cost of believing, practicing, and acting on one’s faith decreases religious freedom.

Conversely, anything that decreases those costs increases religious freedom.” In sum, religious

freedom facilitates religious activities and enhances the efficiency of practicing and

disseminating religion. This definition implies that religious freedom should be free of

interference, and any interference on religion tends to increase the cost of practicing and

disseminating religion and thus hinders religious freedom. What this definition misses is the

flipside of religious freedom. The International Covenant on Civil and Political Rights of the

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United Nations adds the following to address this issue: “No one shall be subject to coercion

which would impair his freedom to have or to adopt a religion or belief of his choice.”17 Like any

freedom, one’s religious freedom, if unchecked, may encroach upon the religious freedom of

others. When this occurs, without the intervention of a third party such as the government,

clashes may turn violent and be detrimental to economic performance. The implication here is

that government regulations on religion, commonly viewed as restrictions on religious freedom,

may be necessary for social (or religious) order and economic efficiency.

In this study, we attempt to examine different institutional dimensions of religious freedom and

to investigate how they co-act with religiosity to affect economic performance. From the

institutional perspective, religious freedom has two dimensions: the first consists of soft,

informal rules, or the religious culture, which facilitates or constrains religious activities; and the

second includes hard, formal rules, such as laws and government regulations regarding religion.

Our theoretical conception fits the recently available data on religious freedom which measure

two variables of religious freedom. We need to point out that the data on religious freedom we

use is actually data on the lack of religious freedom, or interference in religion. The reason is that

most freedoms can only be measured by the degree to which they are restricted. The first

variable is an index of “social hostilities involving religion” (SHI). We use this variable to

measure the informal, cultural aspects of interference on religion or religious freedom. The

second variable is an index of “government restrictions on religion” (GRI). This index measures

governmental laws, policies, and regulations regarding religion and can be used to represent the

formal dimension of interference in religion or religious freedom.

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SHI essentially measures people’s negative attitudes and behavior toward the religions of others.

It is the opposite of religious tolerance, and an important dimension of religious freedom. Strong

social hostilities involving religion encourage religious and social segregation and fuel religious

conflicts. They increase the costs of religious activities and decrease religious freedom. Such

costs that are incurred by segregation, hatred, and conflicts are also economic costs for a society.

We argue that societies with strong social hostilities involving religion tend to have slower

economic growth. Thus, religious social toleration is a precondition for economic stability and

growth.

GRI measures the limitations imposed on or support for certain religious activities by the

government in terms of its laws, policies, and regulations. The role of GRI on economic growth

is more complicated than that of SHI. As we showed earlier, conventional wisdom tends to

emphasize the right to practice and proselytize one’s religion, and thus overlook the need to

protect the right of someone not to believe or be converted. Thus, government restrictions on

religion tend to be viewed as exerting a negative force that reduces religious freedoms.

However, in a market for religion where different religions compete for followers and social and

economic resources, unregulated and unrestrained religious freedoms by all religions may

eventually lead to a "war of all against all."18 Huntington also warned of the potential for

violent conflict along religious fault lines.19 In this sense, certain governmental restrictions on

religious freedoms are justified as they are “necessary to protect public safety, order, health, or

morals or the fundamental rights and freedoms of others.”20 We conjecture that under certain

circumstances GRI, or certain aspects or dimensions of GRI, may exert a positive influence on

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economic performance, analogous to a free economy that is fairly and efficiently regulated by

the government.

With this background and theoretical reasoning, we set out to examine how the two dimensions

of interference in religion and religious freedom affect economic growth. In the next section, we

run a number of multivariate regressions for a cross-section of countries in order to examine the

relative impacts of the two types of religious freedom indicators, while controlling for religion

and other economic predictors. Based on our theory, we expect that SHI will have a positive

impact on economic growth, but GRI will have a mixed impact on economic growth.

Empirical Test and Findings

Data

The dependent variables tested are Gross Domestic Product Growth Rate (GDP_growth) and Per

Capita Gross Domestic Product Growth Rate (GDP_PC_growth). We used market prices based

on constant local currency and took the five-year average from 2008 to 2012 for each of the

variables. These two variables are derived from the World Development Indicators (WDI).21

Social Hostilities Involving Religion Index (SHI), Government Restrictions on Religion Index

(GRI), and its individual items were collected from the Rising Tide of Restrictions on Religion

Survey.22 We took the value from 2010, the most recent available year. SHI is between 0 (least

social hostilities) and 10 (most social hostilities). GRI also ranged from 0 (least government

restrictions) to 10 (most government restrictions). (More details on SHI and GRI follow.)

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The individual religious makeup of each country (Christian%, Muslim%, Buddhist%, Hindu%

etc.), and Religious Diversity Index (RDI) were taken from the Global Religious Diversity

Research.23 This research examined the percentage of the population that belonged to eight major

religions in year 2010, including Christian, Muslim, Buddhism, Hindu, unaffiliated, folk religion,

Judaism, and other religions. The RDI is calculated from the percentages of eight religious

groups, ranging from 0 (least diversified) to 10 (most diversified). In this study, we created

several variables to better measure the influence of a single dominant religion (Christian50,

Muslim50, Buddhism50, Hindu50, etc.) and overall religious dominance (Dominant). A single

dominant religion is a dummy variable. If 50 percent or more of the population of a country

believes in a single religion, then the value of the dummy is 1, otherwise 0. For example,

Christian50 equals 1 if the population of a country is over 50 percent Christian. Given this

definition, we are able to test the impact of the dominance of a single religion for all major

religions. Several countries were excluded from the sample because they had no single religion

higher than 50 percent. Only one country has Jewish50 at 1, which is Israel. Thus, Dominant is a

dummy variable, equal to 1 if Christian50=1 or Muslim50=1 or Hindu50=1 or Buddhist50=1 or

Jewish50=1, and 0 otherwise.

In this study, we controlled for the influence of income level (GNI_PC_PPP) on economic

growth. It is computed as the average gross national income (GNI) per capita based on

purchasing power parity (PPP) for the five years: 2008 to 2012 (Unit: thousand dollars). This

variable was collected from the WDI in 2013. Edu Index is controlled in this study as an

indicator of human capital. We use the Education index in 2011 from International Human

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Development Indicators developed by United Nation. It is a normalized value, ranging from 0 to

1. We also controlled economic freedom index in 2011 published by The Wall Street Journal and

The Heritage Foundation. Economic freedom is on a scale of 0 (least free) to 100 (most free).

Findings

The effects of social hostilities involving religion (SHI). SHI is an index based on 13 survey

questions on social hostilities involving religion, covering subjects ranging from crimes,

malicious acts, or violence motivated by religious hatreds or biases, frictions and tensions among

religious groups, and religion-related wars or terrorist activities. All of these increase the costs of

practicing religion for those religious groups that are adversely affected and thus should be

viewed as leading to a reduction in religious freedom. Throughout our analyses, it is clear that

SHI is negatively correlated with economic growth. The negative effect of SHI is statistically

significant in Model 1 & 3 of Table 1. The lack of socially-based religious freedom breeds hatred

and conflicts and is related to all sorts of atrocities. Social intolerance to other religions is also an

economic liability weighing on the ability of a country to achieve consistent economic growth.

Table 1 – Regressions of Religious Freedom on Economic Growth

Model 1 Model 2 Model 3 Model 4

Dependent Variable GDP_Growth GDP_PC_Growth GDP_Growth GDP_PC_Growth

B SE B SE B SE B SE

(Constant) 4.812*** 1.694 0.690 1.596 (Constant) 7.884+ 1.936 2.848* 1.848

GNI_PC_PPP -0.083+ 0.023 -0.108+ 0.021 GNI_PC_PPP -0.079+ 0.023 -0.098+ 0.022

Edu Index -4.372*** 1.813 0.443 1.707 Edu Index -4.530*** 1.736 0.945 1.657

Economic Freedom 0.029 0.029 0.018 0.027 Economic Freedom 0.024 0.029 0.012 0.027

Muslim% 0.432 0.732 -0.245 0.689 Christian50 -2.487*** 0.956 -1.909** 0.912

Unaffiliated% 0.827 1.549 2.652** 1.459 Muslim50 -2.039** 1.011 -2.012** 0.965

Hindu% 2.931** 1.674 2.648** 1.577 Unaffliated50 -1.382 1.300 -0.145 1.240

Buddhist% 3.441*** 1.111 3.505*** 1.046 Hindu50 -0.172 1.545 0.128 1.475

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Folk Religions% 5.442** 3.107 2.953 2.926 Buddhist50 0.596 1.249 1.072 1.192

Jewish% 3.517 2.818 1.726 2.655 Jewish50 0.206 2.273 -0.836 2.169

GRI 0.230** 0.125 0.243** 0.118 GRI 0.215** 0.122 0.214** 0.117

SHI -0.139* 0.101 -0.060 0.095 SHI -0.148* 0.100 -0.073 0.095

N 129

129

N 129

129

Adj. R-Square 0.414

0.349

Adj. R-Square 0.42

0.339

F 9.236+

7.252+

F 9.427+

6.957+

Note: *p<0.1; **p<0.05; ***p<0.01; +p<0.001 (all 1-tailed). In Models 1 and 2, Christian% is excluded because the sum of all

percentages equals 100. In Models 3 and 4, FolkReligion50 is not included because the variable is constant or has missing

correlations.

The role of government restrictions on religion (GRI). GRI is an index based on 26 survey

questions about the role of government in facilitating or constraining religion. These 26

questions are comprehensive and cover three aspects of government restrictions: (1) whether the

constitution or basic laws specify “freedom of religion”; (2) whether any level of government

imposes limitations on religious activities; (3) whether any level of government funds any

religions or exhibits favoritism toward any religion.

First, we used the overall GRI, which is based on the sum of all 26 questions, in our analysis to

assess the effects of government restrictions on religious freedom on economic performance.

Interestingly, our statistical analyses show that GRI is positively correlated with economic

growth, and its positive effect is statistically significant at p<0.05 level in all four models of

Table 1. This finding lends support to our theoretical conjecture that in order for a society to

benefit from the positive forces released by religions, such as entrepreneurial ideas, economic

skills, and social capital that fuel economic growth, government regulation is necessary to

maintain efficiency-enhancing rules governing the religion market. At the very least, the

government must be capable of controlling social hostilities involving religion from escalating

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into wars or terrorist activities. It would be difficult to focus on creating wealth if the various

religious groups spend their resources and lives engaging in sectarian or communal violence.

Next, we further examined how different aspects of GRI, such as constitutional laws,

governmental limitations, and governmental favoritism, affect economic growth. Since there are

26 questions, we decided to summarize them and group them according to the most important

factors by conducting a factor analysis. Based on several runs and an examination of both the

eigenvalues and the questions, we decided to limit the number of factors to two. The first factor

has high loadings mostly concentrating on GRI-3 to GRI-19 (except GRI-7, GRI-13, and GRI-

18). All these questions, except GRI-3, focused on whether any level of government imposes

limitations on religious activities. We thus called this factor “government limitations”

(GRI_GL). Two types of questions have high loadings on the second factor: (a), whether the

constitution or basic laws clearly specify “freedom of religion” (GRI-1 to GRI-3), and (b)

whether any level of government favors or funds certain religion(s) (GRI-20-1 to GRI20-5). The

absence of “freedom of religion” in the constitution or in the basic laws (type [a] above) and

government favoritism toward certain religions are both discriminatory governmental policies

toward religion. We thus called Factor 2 “government discrimination” (GRI_GD).

Table 2 – Factor Analysis of GRI

Component

GRI_GL GRI_GD

GRI_01 The constitution provides for “freedom of religion” 0.596

GRI_02 The constitution includes stipulations for “religious freedom” 0.527

GRI_03 The constitution protects and respects religious freedom 0.742 0.507

GRI_04 Government interferes with religious practices 0.815

GRI_05 Public preaching is limited by government 0.567

GRI_06 Proselytizing is limited by government 0.678

GRI_07 Converting from one religion to another is limited by government

0.597

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GRI_08 Religious literature or broadcasting is limited by government 0.583

GRI_09 Foreign missionaries are allowed to operate 0.497

GRI_10 The wearing of religious symbols is regulated 0.520

GRI_11 There was harassment or intimidation of religious groups by government 0.724

GRI_12 The national government display hostility toward minority religion 0.795

GRI_13 The national government did not intervene in cases of discrimination or abuses against

religion

GRI_14 The government has an established organizations to regulate or manage religious

affairs 0.484

GRI_15 Government denounced one or more religions as dangerous “cults” or “sects 0.509

GRI_16 Government formally ban some religions 0.672

GRI_17 There are instances when the national government attempt to eliminate an entire

religion 0.707

GRI_18 Government asks religious groups to register

GRI_19 Government used force toward religion that resulted in life loss or properties damaged 0.742

GRI_20_01 The constitution recognizes a favored religion or religions 0.738

GRI_20_02 All religious groups receive the same government access and privileges 0.786

GRI_20_03_a Government provides funds for religious education 0.671

GRI_20_03_b Government provides funds for religious property 0.477

GRI_20_03_c Government provides funds for other religious activities 0.449

GRI_20_04 Religious education is required in public schools 0.723

GRI_20_05 The national government defers to religion on legal issues 0.606

Notes: Extraction Method: Principal Component Analysis. Rotation Method: Varimax with Kaiser Normalization. Rotation

converged in 3 iterations.

Using the two GRI factors provides insight into the role of government in the promotion of and

restriction on religious freedom and economic development. Factor 1, government limitations on

religious freedom, exerts a positive effect on economic growth, whereas Factor 2, government

discrimination against certain religion(s), plays a negative role in economic growth (see Table 3).

In other words, the positive effect of GRI that we observed earlier is derived primarily from the

limitations the government imposes on religious activities. Government guarantees of civil

rights, including religious freedom, generally are not antithetical to economic growth.

Factor 2, government discrimination (GD) against certain religions, increases the costs of

practicing the discriminated religion and reduces the freedom for religious affiliation: the greater

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the GD, the lower the economic growth. Countries with a low GD provide protection for

freedom of religion either through the constitution or the basic laws and also tend to have higher

economic growth rates.

In sum, GL and GD have opposite effects in promoting economic growth. The higher GL

(Factor 1) and the lower GD (Factor 2), then the greater the economic growth. How do we

explain this? Taken from recent news, for example, in July 2014 Reuters reported that “Islamist

insurgents have issued an ultimatum to northern Iraq's dwindling Christian population to either

convert to Islam, pay a religious levy, or face death, according to a statement distributed in the

militant-controlled city of Mosul.” From the Islamist insurgents view, they are practicing their

religious beliefs. But their freedom to do so causes harm to others who do not practice Islam.

There is little disagreement that such “freedom” must be limited by the government; otherwise

the unrestrained freedom of practicing one’s religion may cause violence and disruption to

economic activities. In this regard, reasonable government limitations on some religious

activities may be necessary and conducive for economic growth. In the market of religions,

some religious regulation is necessary. This regulation, however, should come in the form of

setting some limitations on religious activities, especially extreme religious activities that

encourage hatred and conflicts in the general society, while lowering discrimination among

groups.

Table 3 – Regressions of Government Limitations and Discriminations on Economic Growth


DV GDP_Growth GDP_PC_Growth DV GDP_Growth GDP_PC_Growth

B SE B SE B SE B SE

(Constant) 5.034+ 1.602 0.964 1.507 (Constant) 7.722+ 1.812 2.606* 1.715

GNI_PC_PPP -0.074+ 0.023 -0.099+ 0.021 GNI_PC_PPP -0.071+ 0.022 -0.090+ 0.021

Edu Index -4.035** 1.769 0.767 1.665 Edu Index -4.612*** 1.692 0.845 1.601

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Economic Freedom 0.032 0.028 0.021 0.026 Economic Freedom 0.028 0.028 0.017 0.026

Muslim% 0.603 0.721 -0.092 0.678 Christian50 -2.072*** 0.949 -1.455* 0.898

Unaffiliated% -0.512 1.601 1.373 1.506 Muslim50 -1.398* 1.010 -1.338* 0.955

Hindu% 2.743** 1.633 2.460* 1.536 Unaffliated50 -1.412 1.272 -0.172 1.203

Buddhist% 3.826+ 1.127 3.847+ 1.060 Hindu50 0.212 1.514 0.559 1.433

Folk Religions% 4.782* 3.037 2.338 2.858 Buddhist50 1.411 1.261 1.947* 1.193

Jewish% 3.866* 2.765 2.039 2.601 Jewish50 1.055 2.242 0.073 2.122

SHI -0.136* 0.097 -0.057 0.091 SHI -0.136* 0.096 -0.064 0.091

GRI_GL 0.602*** 0.248 0.626*** 0.233 GRI_GL 0.569** 0.244 0.595*** 0.231

GRI_GD -0.258 0.247 -0.217 0.232 GRI_GD -0.280 0.235 -0.304* 0.223

N 129

129

N 129

129

Adj. R-Square 0.441

0.381

Adj. R-Square 0.448

0.381

F 9.422+

7.557+

F 9.654+

7.569+

Note: *p<0.1; **p<0.05; ***p<0.01; +p<0.001 (all 1-tailed). In Models 1 and 2, Christian% is excluded because the sum of all

percentages equals 100. In Models 3 and 4, FolkReligion50 is not included because the variable is constant or has missing

correlations.

The next question is: Do GRI (in the form of GL or GD) and SHI interact? Statistically, an

interaction term of two variables is the product of the two variables. The coefficient estimate of

the interaction term, along with the coefficients of the two variables, reveals whether the two

variables have a joint effect on the dependent variable that otherwise cannot be captured from the

effects of the two variables independently. Our analyses show that the interaction between GRI

(or GL and GD) and SHI does not have a significant effect on economic growth (the statistical

results are not presented here). In short, the social and governmental dimensions of religious

freedom do not co-determine economic growth.

The role of a dominant religion. An examination of the religious freedom construct may lead one

to wonder about the impact of the religious type, as freedom of religion may be rooted in the

majority religion. We first examine the role of a single dominant religion (defined as a 50

percent or greater affiliation rate) on economic growth, along with SHI, GRI (or GL and GD),

and the other control variables. We found that the dominance of Christians or Muslims has a

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negative correlation with economic growth. A dominance of Hinduism is a borderline case (not

signifcant); a dominance of Buddhism is positively associated with economic growth (see Table

4). It is interesting to note that GRI is statistically significant at p<0.05 level; but, the positive

factor derived from it is statistically significant at p<0.01 level while the negative factors is less

significant (significant only in Model 4 not in Model 3), further supporting our decision to use

the two factors to represent GRI.

Table 4– Regressions of a Single Dominant Religion on Economic Growth



B SE B SE B SE B SE

(Constant) 7.380+ 1.854 2.743* 1.761 7.309+ 1.736 2.552* 1.630

GNI_PC_PPP -0.079+ 0.022 -0.098+ 0.021 -0.071+ 0.022 -0.089+ 0.021

Edu Index -4.621*** 1.727 0.919 1.641 -4.682*** 1.687 0.835 1.584

Economic Freedom 0.022 0.028 0.012 0.027 0.026 0.028 0.017 0.026

Christian50 -1.870*** 0.673 -1.771*** 0.639 -1.525** 0.673 -1.384** 0.632

Muslim50 -1.478** 0.782 -1.873*** 0.743 -0.939 0.789 -1.276* 0.741

Hindu50 0.404 1.381 0.288 1.312 0.690 1.354 0.623 1.271

Buddhist50 1.182 1.059 1.211 1.005 1.879** 1.080 2.010** 1.014

SHI -0.139* 0.098 -0.080 0.093 -0.122* 0.094 -0.063 0.088

GRI 0.225** 0.121 0.216** 0.115

GRI_GL 0.590*** 0.243 0.598*** 0.228

GRI_GD -0.233 0.232 -0.299* 0.218

N 119

129

129

129

Adj. R-Square 0.423

0.349

0.449

0.391

F-Value 11.446+

8.620+

11.410+

9.235+

Note: *p<0.1; **p<0.05; ***p<0.01; +p<0.001 (all 1-tailed)

Buddhism is dominant in Bhutan, Cambodia, Laos, Mongolia, Sri Lanka, and Thailand; Macao is

the only area where folk religion is dominant (accounting for 58.9 percent of the population).

We should note that Christianity and Islam are highly organized, one-God (and thus exclusive)

religions; whereas Hinduism, Buddhism, and folk religions have multiple gods. These societies

also tend to have relatively more fragmented and loosely organized religious practices.

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To further test the role of religious dominance in economic growth, we re-coded the religious

dominance variable, “Dominance,” in the following way: Dominance equals 1 if Christian50=1

or Muslim50=1 or Hindu50=1 or Buddhist50=1 or Jewish50=1, and 0 otherwise. We then

conducted statistical analyses using this new variable. The results show that Dominance is

negatively correlated with economic growth (see Table 5).

Table 5– Regressions of Religious Dominance on Economic Growth



B SE B SE B SE B SE

(Constant) 6.830+ 1.928 2.598* 1.834 6.862+ 1.843 2.338* 1.742

GNI_PC_PPP -0.093+ 0.023 -0.110** 0.022 -0.089+ 0.023 -0.106+ 0.022

Edu Index -4.133** 1.772 1.695 1.685 -4.193*** 1.752 1.599 1.655


Dominant -1.565** 0.716 -1.748*** 0.681 -1.200** 0.733 -1.324** 0.693

SHI -0.086 0.099 -0.016 0.094 -0.093 0.096 -0.026 0.091

GRI 0.250** 0.109 0.187** 0.103

GRI_GL 0.686*** 0.227 0.592*** 0.215

GRI_GD -0.005 0.221 -0.133 0.209

N 129

129

129

129

Adj. R-Square 0.364

0.280

0.380

0.306

F 13.220+

9.288+

12.200+

9.077+


In sum, while the roles of SHI and GRI (GL and GD) remain the same (with the effect of SHI

being statistically insignificant), societies with a dominant religion, especially with a dominance

of Christians or Muslims, tend to have lower economic growth. This leads us to consider the

role of religious diversity on the economy. In other words, if a single religion dominates

(regardless of the religious type), economic growth suffers. This result lends support to the

proposition that religious diversity promotes economic growth. We test this hypothesis directly

by examining the role of religious diversity via the Religious Diversity Index.

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The role of religious diversity (RD). Religious diversity is a measure of the level of religious

concentration or fragmentation. If a country has few religions, each with a large number of

followers, it is highly concentrated and thus low in religious diversity; conversely, if a country

has many religions and each has a small number of followers, then religious beliefs are

fragmented and highly diverse. We use the Religious Diversity Index (RDI). The value of the

RDI ranges from close to zero (highly diversified) to 10 (no diversity with only one religion).

We found that religious diversity in a country is positively associated with high economic growth

(see Table 6). This relationship is especially pronounced when there is no dominant religion (as

shown in the positive interaction terms between the RDI and “unaffiliated”) (see Table 6). We

propose that religious diversity leads to more competition for ideas and beliefs, which in turn

promote divergent thinking and a greater capacity for innovation. Religious and ethnic diversity

as well as an attitude of openness for the cultural other are often cited as among the key drivers

of creativity in the Silicon Valley region of California. According to the Silicon Valley

Interreligious Council, the region consists of 50 Buddhist centers, the largest Sikh Gurdwara in

North America, Hindu centers, Zoroastrian temples, Baha’i cultural assemblies, and synagogues

to mention only some. The percentage of non-Christians is about double the rate of the US

average, standing at around 10%, and non-affiliated include 17%24.

Table 6– Regressions of Religious Diversity on Economic Growth



B SE B SE B SE B SE

(Constant) 7.655+ 1.898 3.006** 1.815 -0.503 7.017 -3.981 6.723

GNI_PC_PPP -0.084+ 0.023 -0.103+ 0.022 -0.087+ 0.023 -0.106+ 0.022

Edu Index -4.015** 1.722 1.546 1.646 -3.731** 1.700 1.926 1.629

23

Economic Freedom 0.008 0.027 -0.005 0.026 0.008 0.027 -0.006 0.026

Christian50 -1.983** 1.024 -1.532* 0.979 6.471 6.929 5.658 6.638

Muslim50 -0.931 1.123 -0.943 1.074 6.767 6.924 5.701 6.634

Unaffliated50 -1.168 1.300 -0.034 1.243 -4.079 8.331 -5.104 7.981

Hindu50 -0.440 1.503 0.054 1.437 9.403 8.091 7.445 7.752

Buddhist50 0.957 1.272 1.403 1.216 6.871 7.112 6.814 6.814

Jewish50 0.453 2.241 -0.252 2.142

RDI 0.196** 0.103 0.175** 0.098 1.260* 0.919 1.084 0.880

RDIxChristian50 -1.216* 0.919 -1.030 0.880

RDIxMuslim50 -0.928 0.934 -0.826 0.895

RDIxUnaffliated50 0.731 1.178 1.051 1.128

RDIxHindu50 -1.456 1.253 -1.036 1.201

RDIxBuddhist50 -0.558 0.993 -0.569 0.951

RDIxJewish50 0.806 0.783 0.546 0.750

N 129 129

129

129

Adj. R-Square 0.426 0.343

0.456

0.374

F 10.483+ 7.669+

8.142+

6.106+

Note: *p<0.1; **p<0.05; ***p<0.01; +p<0.001 (all 1-tailed). FolkReligion50, Jewish50 and RDIxFolkReligion50 are not

included because the variables are constant or having missing correlations.

The interactions between RDI and SHI and between RDI and GRI. We first examine the

interaction effect of RDI and SHI. Our analyses show that RDI can significantly reduce the

negative effect of SHI, as shown in the interaction term between them. In other words, social

hostilities involving religion can be significantly reduced if the society has high religious

diversity. Moreover, the main effect of RDI becomes insignificant after the interaction term is

entered in the regression, which means religious diversity’s positive effect on economic growth

can only be realized by lowering the negative effect of social hostilities involving religion (see

Table 7). Our findings suggest that the positive effect of religious diversity on economic growth

is not direct by itself, rather, it is through reducing the detrimental effect of religion-related

tensions, hatred, and violence on the economy.

Table 7– Regressions of Interactions between RDI and SHI on Economic Growth


24


B SE B SE B SE B SE

(Constant) 5.121*** 1.991 1.075 1.896 5.695*** 1.891 1.422 1.793

GNI_PC_PPP -0.109+ 0.023 -0.124+ 0.022 -0.106+ 0.023 -0.120+ 0.022

Edu Index

-

4.145*** 1.723 1.654 1.640

-

4.148*** 1.715 1.585 1.626


Dominant -0.670 0.778 -0.948 0.741 -0.515 0.779 -0.770 0.739

GRI 0.313*** 0.107 0.246*** 0.102

SHI -0.309** 0.160 -0.244 0.153 -0.321** 0.158 -0.260** 0.150

RDI 0.152 0.133 0.120 0.127 0.131 0.138 0.080 0.131

SHI x RDI 0.057* 0.038 0.059* 0.036 0.058* 0.038 0.062** 0.036

GRI_GL 0.748*** 0.223 0.654*** 0.211

GRI_GD 0.220 0.231 0.058 0.219

N 129

129

129

129

Adj. R-Square 0.405

0.324

0.413

0.339

F 11.871+

8.670+

10.995+

8.292+


We then examine the interaction term between RDI and GRI. The results show that the

interaction is good for economic growth (see Table 8). Our interpretation is that if diverse

religions coexist and the government restrains hostilities among them, it is conducive to

economic activities and growth.

Table 8 – Regressions of Interactions between RDI and GRI on Economic Growth



B SE B SE B SE B SE

(Constant) 4.951*** 1.933 0.817 1.840 5.745+ 1.877 1.129 1.762

GNI_PC_PPP -0.111+ 0.023 -0.127+ 0.022 -0.094+ 0.023 -0.109+ 0.021

Edu Index -3.909** 1.702 1.907 1.619 -4.322*** 1.731 1.399 1.625

Economic Freedom 0.038* 0.028 0.022 0.027 0.043* 0.029 0.028 0.027

Dominant -0.476 0.759 -0.715 0.722 -0.654 0.786 -0.646 0.738

GRI_2010 0.068 0.117 0.014 0.112

SHI_2010 -0.113 0.095 -0.042 0.090 -0.083 0.096 -0.011 0.090

GRI x RDI 0.075+ 0.022 0.071+ 0.021

GRI_GL 0.132 0.324 0.000 0.304

GRI_GD -0.068 0.340 -0.066 0.319

GRI_GL x RDI 0.180* 0.076 0.191*** 0.071

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GRI_GD x RDI 0.016 0.097 -0.033 0.092

N 129

129

129

129

Adj. R-Square 0.414

0.336

0.398

0.336

F 13.917+

10.245+

10.398+

8.182+


Summarizing all the analyses involving religious diversity, we find that religious diversity is a

good thing in terms of economic growth across countries. Which countries have the highest

religious diversity? The answer may surprise many seasoned observers: according to the Pew

Research Center, half of the most religiously diverse countries are in the Asia-Pacific region:

Singapore, Taiwan, Vietnam, South Korea, China, and Hong Kong.25 Perhaps religious diversity

partially explains the Asian economic miracle following its economic liberalization.

Concluding Remarks and Policy Recommendations

Our most important finding is that government restrictions that interfere with religion and

religious freedom can be decomposed into two factors: the first is government limitations on

religious freedom (GL), and the second is government discrimination against certain religions

(GD). The first factor, GL, helps economic growth, possibly through its mitigation of religious

conflicts. From the economic growth perspective, it is necessary to have a well-regulated free

religious market. The second factor measures whether a government legally protects religious

freedom and whether it treats all religions equally in terms of providing resources or imposing

restrictions. This factor exerts a negative effect on economic growth: the lack of legal protections

for religious freedoms and discriminatory religious policies lead to low economic growth.

Our study also lends support to the proposition that religious diversity helps to reduce the

negative effects of religion-related social hatreds and conflicts, and to increase the positive

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effects of government religious limitations on economic growth. In general, religious diversity is

a good thing not only socially, but also economically. Governments should formulate policies

that encourage peaceful competition among the various religions.

In general, our statistical analyses paint the following picture of the optimal combination of

religion- and religious freedom‒related variables in a society to contribute to high economic

performance: the constitution or the basic laws should explicitly protect freedom of religion and

the government should treat all religions equally in terms of the distribution resources; at the

same time, the government should effectively regulate religious freedom so that no one religion

has unrestrained freedom to promote its faith to the point that it endangers the safety and

freedom of other religions. As a result, a country should have a free market in which diverse

religions compete peacefully under effective government regulation as well as a high level of

religious tolerance (as opposed to social hostilities involving religion).

Tolerance, including toward religion, is not only a cultural value, but also of an economic value.

The absence of social hostility toward religion is a valuable social (and economic) asset. Further

studies should be conducted to identify the determinants of social hostilities involving religion

(which have consistently negative impacts on economic growth), and to distinguish those

determinants that can be actively changed through societal efforts, such as social movements or

public policies. Policies that strengthen freedom of religion and lower discrimination against

religious minorities may, indeed, promote economic growth and should be pursued by those

governments that seek to sustain economic development and control social tensions. However,

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this does not mean that religious groups can act completely freely. A system to control religious

extremism that endangers the general welfare of society is justified on economic grounds.

Religion, which is fundamental to human behavior and understanding of the world, is still under-

researched in the literature. Religious freedom is an etic value that crosses national borders. In

this article, we have attempted to provide a more granular understanding of religious tolerance

and the impact of regulation on economic growth. Although freedom is desirable, if it is

unrestrained and unregulated, it can lead to economic, social, and political disasters. This is true

with respect to the economic market as well as to the religious market. In the religious market,

diversity and competition should be preserved alongside fair rules of conduct that treat the

various religions equally under the law.

NOTES

1 Max Weber , The Protestant Ethic and the Spirit of Capitalism, trans. Talcott Parsons, intro

Anthony Giddens.(London: Routledge, 1992).

2 For a review, see Robert J. Barro and Rachel M. McCleary, “Religion and Economic Growth

Across Countries,” American Sociological Review 68 (5) (2003): 760–781.

3 Alfred Stepan, “Religion, Democracy, and the ‘Twin Tolerations,” Journal of Democracy 11

(4) (2000): 37‒57.

4 Ilan Alon and Gregg Chase, “Religious Freedom and Economic Prosperity,” Cato Journal 25

(2) (2005): 399-406.

5 Timothy Samuel Shah, “In God’s Name: Politics, Religion, and Economic Development,”

Working Paper of the Religious Freedom Center, Georgetown University, 2013. Also see

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http://berkleycenter.georgetown.edu/rfp

6 Alon and Chase, “Religious Freedom and Economic Prosperity.”

7 Douglass C. North, Institutions, Institutional Change and Economic Performance (New York;

Cambridge University Press, 1990).

8 Eric Dolansky and Ilan Alon, “Religious Freedom, Religious Diversity, and Japanese Foreign

Direct Investment,” Research in International Business and Finance 22 (1) (2008): 29‒39.

9 Shaomin Li and Darryl Samsell, “Why Some Countries Trade More Than Others: The Effect of

the Governance Environment on Trade Flows,” Corporate Governance: An International Review

17 (1) (2009): 47–61.

10 Henry Robinson, Liberty of Conscience (London?: s.n., 1643).

11 Rachel M. McCleary and Robert J. Barro, “Religion and Economy,” Journal of Economic

Perspectives 20 (2) (2006): 49‒72.

12 Anthony Gill, “Religious Liberty and Economic Development: Exploring the Causal

Connections,” Review of Faith and International Affairs 11 (4) (2013): 5‒23.

13 Robert J. Barro and Rachel M. McCleary, “Religion and Economic Growth Across Countries,”

American Sociological Review 68 (5) (2003): 760–781; Ilan Alon and John Spitzer, “Does

Religious Freedom Affect Country Risk Assessment?” Journal of International and Area Studies

10 (2) (2003): 51‒62.

14 Robinson, Liberty of Conscience.

http://berkleycenter.georgetown.edu/rfp

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15 Barro and McCleary, “Religion and Economic Growth.”

16 Timothy Shah and Anthony Gill, “Religious Freedom, Democratization, and Economic

Development,” paper presented at the Annual Meeting of the Association for the Study of

Religion, Economics, and Culture (ASREC), Washington, DC, April 13, 2013, p. 5.

17 “International Covenant on Civil and Political Rights,”1966, available at

http://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx.

18 As Thomas Hobbes gloomily describes in his influential book on social order, Leviathan

(1651).

19 Samuel Huntington, “The Clash of Civilizations?” Foreign Affairs 72 (3) (Summer 1993), pp.

22‒49.

20 “International Covenant on Civil and Political Rights,”1966, available at

http://www.ohchr.org/en/professionalinterest/pages/ccpr.aspx.

21 World Bank, 2013. Available at http://databank.worldbank.org/data/download/WDI-2013-

ebook.pdf.

22 Conducted by the Pew Research Center, 2012. Available at

http://www.pewforum.org/2012/09/20/rising-tide-of-restrictions-on-religion-findings/.


http://www.pewforum.org/2014/04/04/religious-diversity-index-scores-by-country/

24 Silicon Valley Interreligious Council, 2014, Available at

http://www.sivicouncil.org/history.htm

http://www.sivicouncil.org/history.htm

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http://www.pewforum.org/2014/04/04/religious-diversity-index-scores-by-country/

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