Impact of religion and religious differences on political and economic cooperation between countries

Abstract

Studies on economic and political cooperation of countries generally focus on the effects of factors such as geographical proximity, political regime type, and the different fiscal and monetary policies, among others. The impact of religious affiliation, however, stayed mainly as theory. The clash between and/or within religions had important proponents. We provide evidence that religion can have economic union effects. We evaluate whether there is historic economic polarization and whether religions have group dynamics similar to economic unions. Economic convergence, causation and trade cooperation are commonly reported for economic unions. Do these effects exist for countries with the same religion? Econometric challenges exist. Large dispersions within religious groups deem sigma-convergence and beta-convergence problematic: two common measures of income level equalizing effect of economic unions/groups. As a remedy, we propose a new convergence measure namely trend-convergence. This allows us to extend the analysis to over 200 countries, 8 religions, 17 religious sects and factors utilizing 15 different data sets for the 1950-2009 period as data allows. The evidence shows that common religion between countries is an important factor for their economic income level equalization (convergence). However, countries with common religion in general have economic divergence and decreasing bilateral trade. These results are statistically significant at the .01 level. Economic unions and partnerships such as European Union and OPEC have economic convergence, as expected. Most importantly, the only religion that have economic convergence and increased bilateral trade is Islam. This evidence suggests that Islam is having similar effects as an economic union.