Does religion affect international trade in services more than trade in goods?

Abstract

This study used gravity modelling to examine the impact of religion on international trade in goods and services. The Poisson pseudo-maximum likelihood estimator was used to correct for the presence of heteroscedasticity, and religion-related dummy variables were incorporated to investigate the relationship between religion and trade. The results indicate that religion creates positive institutional and network effects, increasing international trade in goods and services; these effects enhance trade in services more than trade in goods; institutional effects exert a greater trade-creating effect than deliberately designed institutional regimes, but a lesser effect than historically established cultural regimes, such as common language and colonial ties; network effects on trade in services, although less significant than common language and colonial ties, promote trade to nearly the same degree as regional trade agreements and shared legal systems. Religion establishes co-religious networks that positively affect interpersonal trust, thereby reducing institutional distances between countries. This effect is similar to that of trading diaspora.