Does Religion Affect Economic Growth and Happiness?

Civilizations have long debated the role of religion in economic life. From appalling commercial appeals to religious business executives from books bearing titles like 'The Management Methods of Jesus' or 'Jesus the CEO,' to the notion that throwing the money-changers out of the temple was a broader criticism of business generally, many societies have wrestled with the question.

Most societies have settled into an uneasy peace between God and mammon, the proper juxtaposition of these two crucial facets of life being highly subjective and, perhaps, unknowable.

New research focused on the impact of business in Islamic countries during Ramadan, a month-long holiday during which almost all business activity stops, suggests that the impacts can be identified and measured.

This will not end the arguments and perhaps not even influence them, belief systems being far more powerful than information systems. But it does suggest, in this one example and context that economic activity is impacted negatively, only to be offset by the finding that SWB - subjective well-being - an increasingly significant measure of performance, is enhanced.

Such findings are important in a post-industrial economy. Intangibles like culture, reputation, customer satisfaction and employee commitment, though not captured on balance sheets or income statements, have an increasingly significant impact on operational and financial outcomes. To the extent that individuals and the organizations for whom the work develop a better understanding of these influences, they can be more optimally managed, hopefully for a mutually beneficial result. JL

Felipe Campante and David Yanagizawa-Drott report in the National Bureau of Economic Research:

Results indicate that religious practices can affect labor supply choices in ways that have negative implications for economic performance, but that nevertheless increase subjective well-being among followers.

A fascinating paper by Filipe R. Campante and David H. Yanagizawa-Drott of Harvard.
They look at economics around Ramadan month celebrated by Muslims. It seems growth comes down during the month but people are happier:

We study the economic effects of religious practices in the context of the observance of Ramadan fasting, one of the central tenets of Islam. To establish causality, we exploit variation in the length of the fasting period due to the rotating Islamic calendar. We report two key, quantitatively meaningful results: 1) longer Ramadan fasting has a negative effect on output growth in Muslim countries, and 2) it increases subjective well-being among Muslims.

We then examine labor market outcomes, and find that these results cannot be primarily explained by a direct reduction in labor productivity due to fasting. Instead, the evidence indicates that Ramadan affects Muslims’ relative preferences regarding work and religiosity, suggesting that the mechanism operates at least partly by changing beliefs and values that influence labor supply and occupational choices beyond the month of Ramadan itself.

Further:

Based on these results, we can speculate over the possible functional roles played by religion and some puzzling questions that naturally arise.

First, the fact that we identify that a costly religious practice can increase subjective well-being is consistent with people having a demand for religious practices. Understanding the deeper determinants of this demand, what type of practices
that that are sustained over time and why, are interesting avenues for future research.

Second, and related, our results arguably give rise to a few questions about individual decisions, particularly to the extent that one could interpret the measures of reported SWB as indicative of welfare in a broader sense.32 If people are happier when they are exogenously induced to fast longer, why were they not fasting longer to begin with? Similarly, if the increased happiness comes from working less, why had they not chosen to do so without the extra inducement?

These puzzles seem to suggest that religious practices could improve outcomes, say, by playing roles as devices for providing self-control (e.g. McCullough and Willoughby 2009) or coordination (e.g. Carvalho 2010). For instance, people may be willing to fast longer or work less, but only as long as others are also fasting longer or working less (perhaps due to stiff competition in the labor market). In that case, religious practices may provide a way to coordinate around that presumably better outcome. 

Last but not least, our paper also provide some new insights for the ongoing debate regarding how to assess the effects of policy interventions on welfare. Our results identify circumstances in which GDP growth and SWB are pushed in different directions, and in doing so they substantiate calls for considering measures of SWB as important indicators, in addition to standard measures such as GDP (Stiglitz, Sen and Fitoussi 2009).