Improvements in religious liberty tend to precede economic freedom; increases in religious liberty have a wide array of spillovers that are important determinants of economic freedom & explain the direction of causality

Makridis, Christos, Religious, Civil, and Economic Freedoms: What's the Chicken and What's the Egg? (April 24, 2021). SSRN: http://dx.doi.org/10.2139/ssrn.3833196

Abstract: This paper studies the relationship between religious liberty and economic freedom. First, three new facts emerge: (a) religious liberty has increased since 1960, but has slipped substantially over the past decade; (b) the countries that experienced the largest declines in religious liberty tend to have greater economic freedom, especially property rights; (c) changes in religious liberty are associated with changes in the allocation of time to religious activities. Second, using a combination of vector autoregressions and dynamic panel methods, improvements in religious liberty tend to precede economic freedom. Finally, increases in religious liberty have a wide array of spillovers that are important determinants of economic freedom and explain the direction of causality. Countries cannot have long-run economic prosperity and freedom without actively allowing for and promoting religious liberty.

Keywords: Economic Development, Economic Freedom, Human Flourishing, Religious Liberty

JEL Classification: E61, H41, O43, O47

7 Conclusion

While there is a large literature on the importance of of institutions for economic growth and

development, there has been almost no discussion of the role of religious liberty. Using a sample of

over 150 countries between 2006 and 2018, recent results from Makridis (2021) show that religious

liberty is predictive of human flourishing even after controlling for cross-country in demographics,

macroeconomic performance, economic freedom, and other time-invariant heterogeneity.

Since it is now clear that religious liberty matters, how does it relate with economic freedom?

Theoretically, religious liberty could be a prerequisite for at least two reasons. First, the freedom

to choose what to believe is a prerequisite for assigning meaning to our actions. Second, religious

liberty provides a foundation for other freedoms to emerge, such as property and contracting

rights. Using similar data as Makridis (2021), this paper investigates whether increases in economic

freedom precede religious liberty, or whether it is the other way around. The results suggest that

religious liberty is not only a much stronger predictor of economic freedom than the other way

around, but also that lagged increases in economic freedom do not show up as increases in religious

freedom, but they do the other way around. Furthermore, this paper provides new evidence on

the spillover benefits of religious liberty on other behavior in society and the public sector.

Admittedly, a number of questions for future research remain. What are specific examples of

policies that affect religious liberty? How do these policies affect individual human capital and

investment decisions? How does religious liberty influence governance at more local levels? These

are all questions that should be addressed in future work, but require more granular data.