Religion and Economic Performance

Oleh: Rininta Nurrachmi


Studies on religion and economy have attract many researchers. This paper is aim to observe how  religion  influence  economy  by  seeing  from  microeconomic  and  Islamic  perspective. Moreover, it elaborates the role of religion for economic performance. The finding indicates that social phenomena in the community can be understood by seeing the individual behavior as part of microeconomic level. Individual consumer sees religious expression as an economic good that must compete with other goods. While from Islamic perspective, economic activities should provide a better concept according to the Quran, Sunnah and hadith. Religion has a role to enhance economy by shaping individual values and attitudes particularly in terms honesty, work ethic and trust.

Keywords Religion, Economic performance, Islam and individual


Religiosity is a subject that influence economic attitude and activities of individuals, group  and  societies.  Iannaccone  (1998)  states  that  studies  on  religion  enhance  economy at several levels which indicates that economics models can be modified to address queries about belief, norms and values. Tu et al., (2011) claim that the relation between religion and economic performance have been long considered by economist. The study found that development and institution are characterized by mutual feedback mechanisms. Demand for religion may partly be determined by economic factors and development. Past studies on religion and economic linkage has received wide empirical attention (see Barro & McCleary, 2003 ;Guiso, Sapienza, & Zingales, 2003; Daniels & von der Ruhr, 2005; Noland, 2005 ; Belloumi, 2008 and Autiero & Vinci, 2016). Their works conducted on

cross countries and developed countries in the scope of macroeconomic. Few literatures done to examine the association between religion and economy in micro level such as individual (see  Tu,  Bulte,  &  Tan,  2011;  Renneborg,  2012).  They  believe  there  is  a  mutual  feedback between  development  and  institution.  Informal  institution  such  as  religion  is  an  important driver for economic development. Understanding social phenomena can be understood through understanding individual behavior.

From  these  background,  this  paper  is  aim  to  cast  a  light  to  microeconomic  level focusing on what is religion from microeconomic perspective and religion and economy from Islamic perspective. Besides that we want to explore what is the role of religion for economic performance. The remaining section is organized into four parts. Section two elaborates the meaning of  religion  from  microeconomics  perspective,  religion  and  economy from  Islamic perspective. Section three we observed the role of religion for economic performance. The last part is concluding remarks and bibliography.


Religion is  aspect  that  shapes  people’s  values  that will influence how individual acted and directly affects the way the societies operate. Economist namely Hayek, Popper and Watkins mentioned  that  the  social  phenomena  can  be  understood  through  understanding  individual action.  All  social  phenomena  and  the  function  of  all  social  institution  should  always  be understood from decision action and attitude of human individuals.

Previous  study  by    Chiswick  (2010)  shows  that  causations  between  religion  and economic  activities  can  runs  both  ways  where  religious  identity  effects  various  economic activities  and  vice  versa  where  the  economic  incentives  provide  influence  on  religious observance and institution. The study claims that prices and incomes are powerful incentives that drive individuals’ action and human capacity for being a costly behavior including costly religious structures.

As  a  part  of  microeconomics,  individual  consumer  sees  religious  expression  as  an economic good that must compete with other goods for a share of resource budget. The goods is intangible thing which people express as a preference by their willingness to spend time and money on its acquisition. It is not a good that can be purchased in a consumption-ready form. It belongs to the category of economic goods that must be self-produces by each individual. As a consumers they may buy goods and services that contribute to this end, however they have to spend their time of using it in a way that creates a religious experience.

The theological aspect of any particular religion can be express as its technology, a set of blueprint for behaviors, expenditures and beliefs that will produce the  desired results.  It provides  consumer  a  production  function  that  convert  time  and  money  which  is  labor  and capital  into  output  that  we  called  “religious  experience”.  As  a  spiritual  aspect  religious experience is the central quality that effectively define an experience of religion.

Azzi  and  Ehrenberg  (1975)  (cited  by  Chiswick,  2010)  present  that  religion  is  best thought of as a bundle of three distinct but inter-related goods namely as follows :

  1. Spirituality : The desire for primal human impulse that find some sort of expression in every society from the earliest time to the present.
  2. Religion always seems to have a collective dimension, an individual “joins” or “belongs to” a particular religion and observes various rituals as a “member” of this group
  3. Religion addresses  the  dilemma  of  human  mortality,  the  frightening inevitability of death  and  its  implications  for  the  meaning  of  life.  It  refers  to  the  “afterlife  good,” although not every religion speaks to this need by positing an explicit life after death.

In  brief  the  perspective  of  religion  from  microeconomics  sees  that  religion  can  be express as an economic good that must compete with other goods. Besides that it is a part of human   behavior   development   through   religious   experience   by   knowing   about   human spirituality and the dilemma of human mortality.


Islam sees religion as guidance of life based on the Holy Qur’an and the Sunnah of Prophet Muhammad  (SAW).  The  Holy  Qur’an  is  the  final  revelation  from  Allah  to  mankind  was revealed by Prophet Muhammad (SAW). Sabjan (2009) mentions that The Holy Quran is not merely to provide divine guidance to worshipping the One and Only God but also to provide extensive information and references  concerning religion,  religious belief,  norms and  basic principles relation to various aspects of life. The second source of Muslim guidance to study religion  is  the  Sunnah  of  the  Prophet  Muhammad  (SAW)  as  the  last  messenger  of  Allah. Sunnah has been defined by scholars “a word spoken or an act done or a conformation given by the Holy Prophet Muhammad (SAW).”

Economy from Islamic perspective is the subject that study human behavior in relation to multiplicity of wants and scarcity of resources with alternative uses. As a result economy is aim to maximize falah for the human well-being both in the present world and the hereafter (Hasan, 2011). The study emphasizes that Muslim should belief that there is life after death in the hereafter and it is permanent and last forever. As stated in QS An-Nahl verse 97 :

“Allah has promised that whosever dose righteousness, whether male or female, while he is a believer, will be surely given a good life (hayyatan thayyiban) not only in this world but also in the hereafter”.

The verse exemplify that Muslim who do good deed such as being honest, trusty and righteousness  will  be  provided  with  a  good  life  in  the  world  and  hereafter.  Hence,  the performance of a Muslim in a community will surely influence others in the society.

Islam established the foundations of its economic system fourteen hundred years ago and  its  principles  are  deemed  straightforward  and  simple  (Sharif,  2003).  The  simple  and straightforward system has been doubted by economist namely Timur Kuran (born in 1954 – present). He claims that Islamic Economic system has less power and not suitable in the present time not like mainstream economics, it is only suitable for small community (Kuran, 1983). In reality many countries apply Islamic economy in the system such as the existence of Islamic banking and financial system and halal industry in developed and developing countries.

The role of Islam for economy should transfer human behavior into a better creatures. As Allah has set human’s responsibility as leader or Khilafah in this world. Thus the system of Islamic  economic should provide a better concept as well as practical  guideline on how to perform economic activities which are in line with the Quran, hadith and other Islamic norms and values. Zaman (2003) provides an example that the principles of spending for the sake of Allah is an initial and tentative beginning of Islamic economic. The spending of excess wealth for the sake of Allah has received tremendous emphasis in Quran and hadith. An extremely popular book entitled Fazail-e-Sadaqat elaborated about Quran verses and hadith and explain them detail in order to persuade people to spend in the way of Allah.

In conclusion, religion and economy in Islam is mutual element to enhance a human behavior to be a better individual according to the Quran, Sunnah and hadith. Allah has set that every  human  being  is  a  leader  or  Khilafah  in  the  world.  Thus  the  performance  of  Islamic economic should provide a better concept for economic activities which is benefit the society.


Religion and economy are two subject that relate to each other. Wang & Lin (2014) reports religion play a meaningful role in economic performance where it has influence on political preference, human capital and work ethic. The study observed China who face income disparity, environmental pollution and official corruption. In the Western countries such as the United Stated and Canada, Protestantism is virtue as a hard worker and has allowed the country to build up a large saving base which provide the capitalist with funds needed to increase the investment and capital stock (Grier, 1997).

As part of economy, human capital is the essential thing for development. A person born with certain religion and receive religious education will get a better skills, knowledge, memories  specific  to  a  particular  religion,  denomination  or  perhaps  even  congregation. Chiswisk (2010) reported the more religious human capital a person has, the more efficiently he or she can obtain a religious experience from any given amount of resources.

Guiso et al. (2003) says that different  religions  provide  different  effects  on  people’s attitudes.  The  work  sees  that  participation  to  religious  service  increases  trust  only  among Christians.  It  has  zero  effect  or  even  negative  effect  for  other  denominations.  Within  the Christians family, the effect is stronger for Protestant than for Catholic. Religion is closely related to social capital and culture (see Guiso et al., 2003 and Tu et al.,2011). Religiosity build bonds among people in a communities, facilitates the accumulation of trust, conventions and shared norms, and introduces mechanism for enforcement of desirable behavior.

Each religion has its own individual attitude according to their belief. Uygur (2009) reviews in his study that there are five character emerged as sign of religious behind pious business people’s action such as hard working, good will (intention), responsible, bounty or benevolence  and  balance  in  one’s  life.  He  observed  Turkish  business  people  using  semi-structured qualitative interviews with 32 Turkish SME owner managers. The result indicates that the new Islamic discourse in Turkey provides moral energy exclusively for the religious business  people  in  terms  of  influencing  and  encouraging  entrepreneurial  activities.  Hence, religion  has  role  to  enhance  economic  performance.  By  promoting  religion  it  can  shape individual  values  and  attitudes  for  economic  performance  particularly in  terms  of  honesty, work ethic and trust.

For other religion beside Islam Tu, Bulte, & Tan (2011) and Renneboog (2012) found that  religious  belief  has  positive  relationship  for economic  performance.     Tu,Bulte  & Tan (2011) proves that the intensity of religious beliefs and household income indicates a positive relation in rural Tibet which most of the populations are Buddhist. Similarly in Netherland for Christianity beliefs, Renneboog (2012) emphasizes that religious household is more likely to save. The study investigates religious and non-religious household using Dutch survey data. The Catholic attached to more importance to thrift and are more risk averse while Protestants combine a more external locus of control with a greater sense of financial responsibility.

Beside that religiosity ties people in the community hence it will influence individual attitude  towards  others.  Burch-brown  &  Baker  (2016)  indicate  that  religious  communities promote or reduce prejudice amongst their member. Their influence will depend on the specific beliefs, attitudes and practices of the community and their interaction with the broader society in which they are based. From the above studies we conclude that religion has a role to enhance economy by shaping individual values and attitudes particularly in terms of honesty, work ethic and trust.


Religion is an aspect  that  shape  human’s  value  which  will  influence  how  individual acted  in  the  society.  Social  phenomena  in  the  community  can  be  understood  by  seeing individual behavior. As part of microeconomics, individual consumer sees religious expression as an economic good that must compete with other goods for a share of resource budget. The objective of the paper is to observe the meaning of religion from microeconomic perspective, religion and economic performance from Islamic perspective. Furthermore to explore the role of religion for economic performance.

The perspective of religion from microeconomics sees that religion can be express as an economic good that must be compete with other goods. Besides that it is part of human behavior development through religious experience by knowing about human spirituality and the dilemma of human mortality.

Religion and economy in Islamic perspective is a mutual element which can enhance a human behavior to be a better individual according to the Quran, Sunnah and hadith. Allah has set  that  every human  being is  a  leader  or  Khilafah  in  the  world.  Thus, the  performance  of Islamic economic should provide a better concept for economic activities which is benefit the society. Lastly we can say that religion has a role to enhance economy by shaping individual values and attitudes particularly in terms honesty, work ethic and trust.


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Burch-brown,     J.,     &     Baker,     W.     (2016).     Religion     and     reducing     prejudice.

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Sharif, M. (2003). Application of Islamic Economic System in a Contemporary Economy : An Illustration with Poverty and Inequity in the USA. Emerald Backfiles, 19(3), 41–54.

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