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On the Economic Effects of (Christian) Religions

The economic consequences of Christian doctrines have gained great attention since at least Max Weber’s “work ethic” hypothesis, that the Protestant Reformation was instrumental in facilitating industrial capitalism – and economic prosperity with it – in Western Europe (Becker and Woessmann, 2009). Recent literature has studied the channels through which differences between the Protestant and Catholic doctrines led to the observed economic differences between regions with this or that dominant denomination. Glaeser and Glendon (1998) model the costs and benefits of the Calvinist belief in predestination and find that under many conditions predestination is a more socially efficient belief system. Van Hoorn and Maseland (2013) report that, in their sample of almost 150,000 individuals from 82 societies, they find strong and robust support for the hypothesis that both individual Protestants and, throughout history, Protestant societies appear to value work much more than Catholics and Catholic societies.

However, Arrunada (2009) confronts the work ethic hypothesis with an alternative “social ethic” hypothesis, according to which Protestant values shape individuals to be more active in mutual social control, more supportive of institutions, less bound to close circles of family and friends, and to hold more homogeneous values. He finds no support for the hypothesis that Catholics work less or less effectively than Protestants but identifies that education has a differential impact in both denominations: “[F]or Protestants education complements religion whereas for Catholics education substitutes for religion” (891). This result is related to Glaeser and Sacerdote (2008), who provide evidence and an explanatory model for the empirical finding that education in the United States is positively correlated with church attendance at the individual level but negatively across denominations. This means that the less educated Christian denominations attract more believers to church but that, within each denomination, the more educated believers are more often at church than the less educated ones. The differential interaction of education and Christian denominations is underlined by Glaeser and Glendon (1998:442), who find in their study of U.S. General Social Survey data “that there is a greater connection between education, which we use as a proxy for worldly success, and church attendance among Protestants, especially Presbyterians, than among Catholics.”

Going further, in their test of Weber’s work ethic hypothesis Becker and Woessman (2009:581) show that Weber was right in his observation that Protestant regions were economically more affluent than Catholic regions (across countries in 1900 and within Prussia in the second half of the nineteenth century). However, they reject the hypothesis that the higher economic development of Protestant regions was based purely on differential work ethics. Instead, they postulate and test a “human capital theory,” according to which an unintended side effect of Martin Luther’s 16th century call, that everyone should be able to read the Bible, was that Protestants acquired literacy skills that functioned as human capital in the economic sphere. Consequently, “a simple economic model predicts that when optimizing individual utility, in equilibrium Protestants will have more education on average than Catholics because they have lower costs and higher benefits of schooling” (541). Underlining the differential role of education in the Catholic and Protestant denominations, their results provide empirical support for the fact that Protestantism led to a better educated population than Catholicism.

A helpful overview of the field is delivered by McCleary (2011). Moreover, more and more researchers are now delving deeper than the religious vs. secular paradigm, e.g. studying the role of religion for risk taking and financial investment (Kumar et al., 2011; Noussair et al., 2013) or for managerial decision making (Hillary and Hui, 2009; Filistrucchi and Prüfer, 2013), while distinguishing between several religions or even between subgroups of one faith.

[NB: This post originally appeared at SIOE.org.]

References

Arrunada, B. 2009. “Protestants and Catholics: Similar Work Ethic, Different Social Ethic,” Economic Journal, 120: 890-918.

Becker, S.O. and L. Woessmann. 2009. “Was Weber Wrong? A Human Capital Theory of Protestant Economic History,” Quarterly Journal of Economics: 531-596.

Filistrucchi, L. and J. Prüfer. 2013. “Faithful Strategies: How Religion Shapes Nonprofit Management,” CentER Discussion Paper, No. 2013-052.

Glaeser, E.L. and S. Glendon. 1998. “Incentives, Predestination and Free Will,” Economic Inquiry, 36: 429-443.

Glaeser, E.L. and B.I. Sacerdote. 2008. “Education and Religion,” Journal of Human Capital, 2: 188-215.

Hilary, G. and K.W. Hui. 2009. “Does religion matter in corporate decision making in America?” Journal of Financial Economics, 93: 455–473.

Hoorn, A. van and R. Maseland. 2013. “Does a Protestant work ethic exist? Evidence from the well-being effect of unemployment,” Journal of Economic Behavior and Organization, 91: 1–12.

Kumar, A., J.K. Page, and O.G. Spalt. 2011. “Religious Beliefs, Gambling Attitudes, and Financial Market Outcomes,” Journal of Financial Economics, 102: 671–708.

McCleary, R. 2011. The Oxford Handbook of The Economics of Religion. Oxford: Oxford University Press.

Noussair, C.N., S.T. Trautmann, G. van de Kuilen, and N. Vellekoop. 2013. “Risk Aversion and Religion.” Journal of Risk and Uncertainty, 47, 165–183.