Is Religion a Determinant of Financial Development?

Abstract

Studies on the determinants of financial development have been silent on the role of religion. Growing evidence in the literature about how financial development positively affects economic growth and development highlights a greater interest in understanding the determinants of financial development. Despite the growing interest in this direction, less focus has been given to the role of religion in financial development. Using data from the World Values Survey, this study explores the relationship between finance and religion. In this study, finance is modelled through different measures of financial development and religion is represented by the intensity of religiosity. Results showed that on average there is a significant negative relationship. Subsequent analysis showed that as countries become financially developed, this negative relationship becomes insignificant. The quantile regression technique was employed to capture the nature of the relationship at different levels. The analysis showed that as countries become financially developed, the negative relationship becomes insignificant to financial development. These results account for some of the differences in the level of financial development between developed and developing countries where the latter tend to be more religious than the former.