Religion and economic development: new insights

Historically, plethora of researchers has investigated the role of religion across multiple facets of human existence. Research in the field of religion and economic development is in its initial stage, and now many researchers are concerned about the non-economic factors and their role in the development of an economy. Religion is considered as the most important non-economic factor that constructs the basic institutional infrastructure of a society. This study is thus aimed at exploring the indirect channels through which religion can influence economic growth such as ethics, poverty alleviation, political participation, social capital and mental health. This research also intends to investigate the association between religiosity and economic development at continental level coupled with an effort to know the role of religion in the economic growth of developed and developing countries using cross sectional data of 110 countries. Due to endogeneity problems in religion and other variables, this study uses a system-generalised method of moment to estimate the relationship between religion and economic development. The results report that religion has a positive and statistically significant direct effect on economic development and shadow economy. Channels i.e. ethics, poverty alleviation, political participation, social capital and mental health reduce significantly the size of the religiosity coefficient and makes it less significant that indicates these channels mediate the impact of religion on economic development and shadow economy. Although the individual impact of each channel on economic growth and shadow economy is not significant. In Asia and Europe impact of religion is positive and is highly significant; Africa shows somewhat positive but insignificant results and in case of America the linkage of religion and economic development is not robust. Developing countries show the positive impact of religion on economic development but these results are not robust. In developed countries the effect of religiosity on economic development is positive and robust as well.