Does religiosity explain economic outcomes?

Religious participation in Europe: Revival vs secularization

There are several theories that can explain the patterns of religiosity in Europe [2]. These include “secularization theory,” “economic market theory,” and “religious individualization theory.” Secularization theory implies a declining role of religiosity and religious institutions throughout the process of modernization and economic development, which include social differentiation, urbanization, and industrialization.

Economic market theory suggests, on the other hand, that competition among multiple religions supports the vitality of religion during the process of economic development. This competition forces religious communities to improve services and attract new adherents. Thus, according to this theory, and in contrast to secularization theory, in countries with greater religious diversity, the process of economic development actually improves the quality of religious services and increases religious participation rates.

Finally, religious individualization theory posits that economic development causes the relationship between church and religiosity to dissipate, and faith practices to become increasingly private and individual. Moreover, even though the institutional presence of traditional religions was weakened by the communist regimes, individual religiosity was suppressed to a lower extent than religious institutions [3]. The empirical evidence suggests that economic development in Western and Eastern Europe is negatively related to all elements of individual religiosity, including religious membership, attitudes, and practices, which is in line with secularization theory and partly with individualization theory. In contrast, economic market theory does not find empirical support [2].

Important dimensions in describing the patterns of religious participation in Europe are age, the strength of church resistance to state regimes, and individual economic security. One study distinguishes between two major driving forces of religious participation rates in transition and post-transition economies, secularization theory, and the tradition of state atheism [3]. In line with secularization theory, more educated younger people who live in urban areas should be less likely to declare a religious affiliation and also less likely to attend religious services than older people. On the other hand, if the primary force for decreased religious participation under communism was state atheism, then the fall of communism should have increased interest in religion from people of all ages. The authors argue that secularization is a primary driving force behind decreasing religious participation rates in Eastern Europe, since they found no evidence of increasing participation among the region’s youth after the collapse of communism.

Figure 1 shows denomination membership in selected Western and Eastern European countries by age groups. Most countries’ denomination memberships increase with age, meaning that younger people generally declare lower membership rates, while older ones report higher rates.

Another important dimension for analyzing patterns of religiosity is the relationship between church and state. US data show that church and state can be substitutes for each other in supporting community members, i.e. a decline in governmental welfare expenditures facilitates increased charitable spending by churches [4].

There were also denominational differences with respect to the strength of church resistance to state regimes during communism. According to sociological studies, the Catholic Church, in which authority is centralized in Rome, was more likely to resist communist regimes than the Orthodox Church, which does not have a centralized seat of power. A study finds that a greater strength of church resistance to the state also implies higher religious participation rates at the individual level. This explains why, at the beginning of the 1990s, participation rates among members of the Catholic Church were higher than those of the Orthodox Church [3].

Recent empirical evidence suggests that, today, Catholic and Orthodox transition economies exhibit distinct and divergent trends in religiosity, as measured by a response to survey questions regarding religious affiliation and church attendance [5]. Accordingly, if secularization is a primary force, then religiosity should be attractive to economically insecure individuals, such as the uneducated, the poor, and the old, while economically secure individuals should have less interest in religion. The notion of a revival, on the other hand, implies that all social groups become equally religious. The study empirically tests this hypothesis, using individual-level survey data from 13 former Soviet Union (FSU) and CEE countries. The findings suggest that Catholic countries have been prone to secularization, while Orthodox countries have experienced a revival of moderate religious beliefs. However, the authors note that individual self-identification with a religious denomination does not indicate a strong religious commitment. Further analyses are needed to distinguish between individuals who merely indicate that they have a religious affiliation and those who actually practice their faith and are committed to their religion.

Religiosity and economic development at a macro-level

A helpful tool in analyzing the economic development–religiosity relationship is Inglehart-Welzel’s global cultural map, which is based on the statistical analysis of global values and attitudes from the World Values Survey. Figure 2 shows this map for the years 2010–2014. Each country is placed on the map according to a specific relationship between religious and economic values. The map has two dimensions: traditional/secular-rational values (vertical axis) and the survival/self-expression values (horizontal axis).

In the first dimension (traditional vs secular-rational values), traditional values emphasize a strong role of religion, the importance of family, deference to authority, and high levels of national pride, while secular-rational values indicate weaker importance of religion and “traditional” families, including the justification of abortion and divorce. In general, this dimension represents the importance of traditional and religious values in a society.

The second dimension (survival vs self-expression values) characterizes economic development and modernization. Survival values include economic and physical security, while self-expression values underscore the importance of quality of life, equality, diversity, and participation in economic and political life. Countries that fall into the bottom-left quadrant of the map have stronger traditional and religious values, but lower economic development. This negative correlation is in line with secularization theory, which suggests that religiosity declines with a better economic development.

As can be seen from Figure 2, ex-communist countries fall into the top-left quadrant of the map. This means that even though individuals in most FSU countries declare high religious participation, they still have more secular and survival values. This is also true for the CEE countries, although individuals in some CEE countries—such as Croatia, the Czech Republic, Hungary, Slovakia, and Slovenia—are more likely to declare self-expression values than individuals from the FSU. This implies that despite increasing religious affiliation, the importance of religion in individuals’ lives in transition and post-transition countries remains low.

Religiosity as a key to human capital accumulation and happiness

Starting from Max Weber’s seminal book The Protestant Ethic and the Spirit of Capitalism (1905), an increasing number of economic, sociological, and psychological studies explore the relationship between religiosity and economic behavior. One study reviews the literature for the US and argues that religious norms moderate individual decision making in many contexts, including human capital investment, marital stability, and employment, by influencing the perceived benefits and costs of these decisions [6]. According to the author, there are three channels through which religiosity may positively affect economic outcomes: (i) social networks; (ii) regulations; and (iii) psychological issues [6]. The social network channel implies that religious communities provide psychological and material support to their members. According to the regulative channel, moderate religious norms and teachings can discourage unhealthy and violent behaviors. Finally, religiosity can provide individuals with a sense of the meaning of life, and can help to cope with loneliness and stressful situations. However, as the author argues, religiosity can also have negative effects. For instance, conservative religious norms may encourage early marriage and motherhood, low investments in secular education, and low levels of female labor force participation. Conservative religious beliefs can also be taken to an extreme and may be interpreted in such a way as to tolerate the abusive behavior of men towards their wives [6].

The literature on the impact of religiosity on economic outcomes in European countries, especially in (post-)transition economies, is still in its infancy. Existing studies underscore mostly positive effects of religiosity. One of the analyzed economic outcomes is individual life satisfaction, which is an individual’s self-evaluation of their own life quality and is typically measured using a survey question. One of the earliest studies analyzes the role of economic and ideological freedom on life satisfaction in Hungary in 1992 and 1998 [7]. Controlling for individual socio-economic characteristics, the author finds that individual participation in religious services increases life satisfaction, this positive correlation is stable over time. Another finding is that the effect of income on life satisfaction is lower for religious people compared to non-religious people. Finally, the author argues that ideological freedom, which is reflected in the increasing role of the church in public life, does not influence individual life satisfaction directly, but only through individual religiosity. In other words, ideological freedom increases individual religiosity, which, in turn, affects life satisfaction positively. A recent study extends these findings to more transition economies, including Bulgaria, the Czech Republic, Poland, and Slovakia, and confirms a positive correlation between life satisfaction and religious services attendance in transition economies [8].

Recently, researchers decomposed the effect of religiosity on life satisfaction into “costs” and “benefits” [9]. Religiosity brings tangible benefits, e.g. social contacts, emotional and material support from a religious network, as well as various spiritual benefits, e.g. the prospect of an afterlife, while the costs are related to the obligation to comply with religious rules and restrictions. Using data on European countries, the authors conclude that tangible benefits associated with religious affiliation do not increase life satisfaction, while spiritual benefits coming from active religious practice are positively correlated with life satisfaction. This opens a discussion on religious practices and religious affiliation as different measures of religiosity: while religious practices affect economic outcomes, merely being affiliated with a religion may not necessarily do so.

Another important consequence of religiosity is related to human capital. Researchers find that praying, participating in religious services, and self-assessed religiosity are associated with better educational outcomes and favorable health-related behavior [10], [11]. Most studies in this stream of literature analyze individual-level data from the US. For instance, one study finds that self-reported importance of religion results in healthier lifestyles for adults and adolescents by reducing tobacco, drugs, and excessive alcohol consumption [10]. This shows a regulative effect of religious norms on individual risky health behavior. Another study suggests that religiosity is associated with more years of schooling and lower dropout rates from school [11].

Religiosity as insurance against stressful events

One explanation for the positive relationship between religiosity and various economic outcomes stems from a so-called “insurance effect” of religiosity. This effect implies that religiosity mitigates psychological stress related to various adverse individual events, such as economic hardship or job layoff, and aggregate shocks, like country-wide economic reforms [12], [13]. These studies document that religiosity has a smoothing effect by reducing an individual’s vulnerability to both negative and positive shocks.

One of the first studies on the insurance effect of religiosity explores whether individual religiosity mitigates the negative effects of a layoff on the life satisfaction of individuals in European countries [12]. The findings suggest that all denominations are insured against negative effects of unemployment when compared to the non-religious. This effect persists if other indicators of religiosity, such as churchgoing and praying, are used. Another finding is that due to the insurance effect of religiosity, religious people are less likely to support job provision by the government and less likely to actively look for a job when they are unemployed. Finally, the authors discuss the policy implications of their findings; they underscore that more religious countries have lower replacement rates for the unemployed. Another implication is that religious and non-religious people may favor different kinds of social support.

A recent study extends the analysis of the insurance effect of individual religiosity to economic reforms in transition countries [13]. Unlike previous studies, this analysis provides causal evidence regarding the insurance effect of religiosity. The findings suggest that religiosity protects individuals against the stressful effects of economic reforms, e.g. massive layoffs that may occur as a result of large-scale privatization. This implies that religious people are more likely to support market-oriented reforms, which may speed up the reform implementation process in more religious countries.