Religion has a two-way interaction with political economy. With religion viewed as a dependent variable, a central question is how economic development and political institutions affect religious participation and beliefs. With religion viewed as an independent variable, a key issue is how religiosity affects individual characteristics, such as work ethic, honesty and thrift, and thereby influences economic performance. In this paper, we sketch previous studies of this two-way interaction but focus on our ongoing quantitative research with international data.

Two important theories of religiosity are the secularization hypothesis and the religion-market model. According to the former, sometimes called a demand-side theory, economic development reduces religious participation and beliefs. According to the latter, described as a supply-side theory, religiosity depends on the presence of a state religion, regulation of the religion market, suppression of organized religion under Communism, and the degree of religious pluralism. We assess the theories by using survey information for 68 countries over the last 20 years, measuring attendance at formal religious services, religious beliefs, and self-identification as religious. In accordance with the secularization view, overall economic development—represented by per capita GDP—tends to reduce religiosity. Moreover, instrumental estimates suggest that this link reflects causation from economic development to religiosity, rather than the reverse. The presence of an official state religion tends to increase religiosity, probably because of the subsidies that flow to organized religion. However, in accordance with the religion-market model, religiosity falls with government regulation of the religion market and Communist suppression. Greater religious pluralism raises attendance at formal services but has no significant effects on religious beliefs or self-identification as religious. Although religiosity declines overall with economic development, the nature of the interaction varies with the dimension of development. For example, religiosity is positively related to education and the presence of children and negatively related to urbanization.