Is Islam Compatible with Free-Market Capitalism An Empirical Analysis, 1970-2010

Abstract

Are majority-Muslim countries laggards when it comes to developing liberal economic institutions Using an Index of Economic Freedom and its component parts, this study finds that Muslim-dominant countries (>50% of the population) are positively associated with free-market capitalism. Protestant dominance is also positively correlated, but the association stems from just two components of the index, mainly legal security and property rights protection. Surprisingly, Protestant countries correlate negatively with small government and freedom to trade, two critical components of free-market capitalism. Muslim dominance shows positive correlations with all areas except for legal security and property rights. The results are consistent when assessing similar variables measuring property rights and government ownership of the economy collected by the Varieties of Democracy Project. Capitalistic policies and institutions, it seems, may travel across religions more easily than culturalists claim.