Religious Diversity and Economic Development in China Shinbao Liua, Shuming Baob, c a,b School of Economics, Xiamen University, Xiamen 361005, China China Data Center, University of Michigan, Ann Arbor, MI 48106, USA c Lab for Urban and Regional Analysis, East China University of Science and Technology, Shanghai 200237, China b Abstract: This paper investigates the interaction between religious diversity and economic development in China. We use religious fragmentation and polarization to measure the diversity of religion. Based on the panel data of religious sites by province from economic census in China, we apply panel data regression to find the following evidence: (1) Religious fragmentation demonstrates a positive and significant impact on regional economic development while religious polarization has a negative and significant impact on regional economic development with different patterns in the eastern, central and western regions of China. (2) Economic development shows a positive and significant influence on religious fragmentation while its impact on polarization is positive but insignificant. A significant two-way relationship exists between religious diversity and economic development in China. We discussed policy implication with convincible results. JEL: O1, R1, Z1 Key words: Religion Diversity, Fragmentation, Polarization, Economic Development 1. Introduction Religion is usually related to the people’s lifestyle and country culture, but less in the determinants of economic development. According to Karl Marx, religion is like other social institutions in that it is dependent upon the material and economic realities in a given society. It has no independent history; instead it is the creature of productive forces. As Marx wrote, “The religious world is but the reflex of the real world.” Since Azzi and Ehren-berg (1975), the economics of religion has grown into a sizable body of research. They pay their attention to the topics following: the nature of religion; the determinants of individual religiosity and participation rates; conversion, commitment, and religious mobility; the emergence and evolution of religious institutions; secularization and pluralism; deviant religions; the 1 socioeconomic correlates of sect membership; church–state issues; the economic consequences of religion; and so on. They deem that religion has close relationship with people’s life, society and economic growth. Different conclusions are reached because different data sources and different measurable indicators are adopted in the research of religion. Montalvo and Reynal-Querol (2003) also made a contribution to this research using diversity measurements of fragmentation and polarization. Then Eum (2011) tests the theories of Montalvo and Reynal-Querol with updated datasets to see if their conclusions still hold true. When we take China into account, it has a significant background of religion, so what of the specific relationship between its religious diversity and economic development? This paper refers to religious fragmentation and religious polarization of Montalvo & Reynal-Querol (2003) from the point of religion sites as the indicator of Religious Diversity in China. By analyzing China nationwide and regional Religious Diversity and economic growth from 1987 to 2004, we try to find whether the religious diversity in China significantly influence its economic growth and analyze the way of influence based on the results. The rest of this paper is organized as follows. In section 2, literatures studied, religious diversity, and economic development are reviewed. We present econometric methodology used in this paper in section 3. Section 4 describes the datasets and discusses the estimation results of regressions. Finally, section 5 shows the conclusion and extended work. 2. Literature Review When we study religion, religious diversity is the first kernel we meet. Barro (1999) and Sala-i-Martinet al. (2004) used the fractions of the population affiliated with different religious groups to measure religious diversity. With the same religious measurement, Noland (2005) used both cross-country and within-country regressions to investigate the relationship between religion and economic performance, and found they were related in most case. Based on international survey data on religiosity for a broad panel of countries, Barro and McCleary (2003) constructed instrumental variables of state religion, regulation of the religion market and measures of religious pluralism 1 based on Herfindahl indexes for the religion shares to investigate the effects of church attendance and religious beliefs on economic growth. They find that economic growth responds positively to the extent of religious beliefs, notably those in hell and heaven, but negatively to church attendance. Later, McCleary and Barro (2006a) used state religion, regulation of religion market and religious pluralism to study the effect of religious diversity. Most of them use state religion to show the polarity effect and use religious affiliation as the differentiated effects of religious diversity. Moreover, Montalvo and Reynal-Querol (2003) used religious fragmentation and 1 The Herfindahl index equals the sum of the squares of the population fractions belonging to each religion, Barro and McCleary’s pluralism index equals 1 - the Herfindahl index. 2 polarization to measure religious diversity. By using the augmented Solow model proposed by Mankiw, Romer, and Weil (1992), they analyzed the relationship between religion and economic development in 83 countries from 1960 to 1992 and found that religious polarization had a negative significant effect on economic development while religious fragmentation does not have any effect. They argued that polarization is superior to fragmentation as a explanatory variable of economic development. Eum (2011) also uses the augmented Solow model with Montalvo’s two religiosity factors. When testing Montalvo and Reynal-Querol’s theory, he includes religious dummies and continent factors as well to account for geographical differences. This paper uses religious fragmentation and polarization to measure religious diversity. Another important research area for religion and economic development is the two-way interaction between them. McCleary and Barro (2006a) extended two important theories of religiosity: secularization hypothesis from a demand-side theory and the religion-market model from a supply-side theory, by using survey information for 68 countries over the last 20 years, found that economic development tended to reduce religiosity, which was in accord with the secularization view. However, according with the religion-market model, religiosity negatively related with government regulation of the religion market and Communist suppression. Moreover, their instrumental estimates showed that there was only one way causation from economic development to religiosity. McCleary and Barro (2006b) focused on macroeconomic aspects of interaction between religion and political economy and used international data to test the two-way relationship. This paper also tests the interaction of religious diversity and economic development in China. 3. Econometric methodology According to Montalvo & Reynal-Querol (2003), the index of religious fragmentation (FRAG) that can be interpreted as the probability that two randomly selected individuals in a country will belong to different religious groups. The form of this indicator is the following: 𝑛 𝐹𝑅𝐴𝐺𝑖 = 1 − ∑𝐽𝑗=1 ( 𝑁𝑖𝑗) 2 (1) 𝑖 Where 𝑛𝑖𝑗 𝑁𝑖 represents the proportion of sites of religion type j in total religion sites in province i. Therefore FRAG increase when the number of religion type increase, it gets the maximum as each religion has an equal size. An alternative indicator of religious diversity is the index of religious polarization of Montalvo and Reynal-Querol (2000), which is as following: 𝑃𝑂𝐿𝑖 = 1 − ∑𝐽𝑗=1 ( 3 0.5−𝜋𝑖𝑗 2 0.5 ) 𝜋𝑖𝑗 (2) 𝒏𝒊𝒋 Where 𝜋𝑖𝑗 is equal to 𝑵 . The index POL ranges from 0 to 1. Opposite to what 𝒊 happens with the fragmentation index, polarization reaches a minimum when there are four religious groups of equal size. Likewise, we estimate the augmented Solow model proposed by Mankiw et al. (1992) with the inclusion of religious indicators. The basic empirical specification can be written as: 𝑌(𝑡) 𝑙𝑛 𝐿(𝑡) = 𝛽0 + 𝛽1 𝑙𝑛𝑠𝑘 + 𝛽2 𝑙𝑛𝑠ℎ + 𝛽3 ln(𝑛 + 𝑔 + 𝛿) + 𝑢 (3) Where Y/L is the output per worker, 𝑠𝑘 is the rate of investment in physical capital, 𝑠ℎ is the rate of investment in human capital, n is the growth rate of population g is the rate of technological change and 𝛿 is the depreciation rate. When we take the impact of religion into account, the equation becomes: 𝑌(𝑡) 𝑙𝑛 𝐿(𝑡) = 𝛽0 + 𝛽1 𝑙𝑛𝑠𝑘 + 𝛽2 𝑙𝑛𝑠ℎ + 𝛽3 ln(𝑛 + 𝑔 + 𝛿) + 𝛽4 𝑟𝑒𝑙𝑖𝑔𝑖𝑜𝑛 + 𝑢 (4) Based on equation (4), considering the panel data model, then (4) becomes: 𝑙𝑛𝑟𝑝𝑔𝑑𝑝𝑖𝑡 = 𝛽0 + 𝛽1 𝑙𝑛𝑠𝑘,𝑖𝑡 + 𝛽2 𝑙𝑛𝑠ℎ,𝑖𝑡 + 𝛽3 ln(𝑛 + 𝑔 + 𝛿)𝑖𝑡 + 𝛽4 𝑟𝑒𝑙𝑖𝑔𝑖𝑜𝑛𝑖𝑡 + 𝑢𝑖𝑡 (5) When we use fragmentation to measure religion development, we get: 𝑙𝑛𝑟𝑝𝑔𝑑𝑝𝑖𝑡 = 𝛽0 + 𝛽1 𝑙𝑛𝑠𝑘,𝑖𝑡 + 𝛽2 𝑙𝑛𝑠ℎ,𝑖𝑡 + 𝛽3 ln(𝑛 + 𝑔 + 𝛿)𝑖𝑡 + 𝛽4 𝐹𝑅𝐴𝐺𝑖𝑡 + 𝑢𝑖𝑡 (6) When we use polarization to measure religion development, we get: 𝑙𝑛𝑟𝑝𝑔𝑑𝑝𝑖𝑡 = 𝛽0 + 𝛽1 𝑙𝑛𝑠𝑘,𝑖𝑡 + 𝛽2 𝑙𝑛𝑠ℎ,𝑖𝑡 + 𝛽3 ln(𝑛 + 𝑔 + 𝛿)𝑖𝑡 + 𝛽4 𝑃𝑂𝐿𝑖𝑡 + 𝑢𝑖𝑡 (7) When we take the two dimensional indicators of religion together, we can get: 𝑙𝑛𝑟𝑝𝑔𝑑𝑝𝑖𝑡 = 𝛽0 + 𝛽1 𝑙𝑛𝑠𝑘,𝑖𝑡 + 𝛽2 𝑙𝑛𝑠ℎ,𝑖𝑡 + 𝛽3 ln(𝑛 + 𝑔 + 𝛿)𝑖𝑡 + 𝛽4 𝐹𝑅𝐴𝐺𝑖𝑡 +𝛽5 𝑃𝑂𝐿𝑖𝑡 + 𝑢𝑖𝑡 (8) 4. Empirical Studies To conduct our analyses, we need measures of religion diversity, economic development and some other economic development explanatory variables. 1. Data and summary statistics The data of fragmentation and polarization used to measure religion is from the religion sites of the 2004 China economic census. There are four main types of religion in China: Buddhism, Christianity, Daoism and Islam, the distributions of the 4 two indicators are shown in figure 1 and 2. Based on the panel data model of (6), (7) and (8), we use real income per capita to measure the level of economic development, average education attainment to measure human capital level, government expenditure excluding, education, arts and health expenditure to measure the policy variable, and fixed asset investment to measure the rate of investment in physical capital. The data of these variables is from Statistical material in 60 years of new China and managed by the author. The summary statistics of these variables are listed in table 1. Although the variation among provinces is influenced by some outliers, the variation does indicate differences in the timing and extent of economic development across China. We include these observations in our model as individual fixed effect for provinces. As we will study the relationship between religion and economic development of the nationwide and regions of China from all its provinces, we have the following hypothesizes: 1. All the provinces have the same growth rate of technology as the nationwide of China, which we quote from Guo & Jia (2005). 2. All the provinces have the same rate of depreciation, which is from Fang (2012). 3. The size of religion sites is homogenous during all the religion sites, the religion sites is in direct proportion to the attendance. 4. The percentage share of each type of religious sites in each province is representative of each religion’s respective provincial share of total sites. If the sites will disappear after they are founded, they will disappear in equal proportion. 2. Empirical results According to panel data model, using panel data regression, when we only take one of the indicators of religion into account, we can get the results as table 2 shows. As table 2 shows, (1), (2), (3) and (4) represent case of nationwide, east, middle and west respectively, while (5), (6), (7) and (8) have the analogous reference with polarization instead of fragmentation. All tables after this have similar representatives. When we study the impact of religion on economic development from fragmentation or polarization of religion, we found that fragmentation of religion has a positive influence on economic development in the nationwide of China, while extreme variation exists in different regions of China. In eastern China, religion fragmentation has a positive significant impact on its economic development, in middle of China, the influence is positive but insignificant while in western China, the influence is negative and insignificant. When it comes to polarization, to the nationwide of China, it has a positive but insignificant influence on its economic development while in its three regions the influence has a remarkable different performance. East has the same case as in nationwide; the Middle part of China has negative but insignificant influence while West has a positive and very significant impact. Now we take two indicators into consideration at the same time in the panel data model, we can get the results as table 3. In order to measure the religion development more accurately, we add fragmentation and polarization of religion into the panel data at the same time, and we get equation (8). As table 3 shows, we can find that in all of China, religion fragmentation has a positive significant influence on its economic development while 5 polarization has a negative significant one. The eastern and middle of China has the same conclusion of both religion indicators, with larger influence in middle than east. For western China, the conclusion is just the opposite. The religion fragmentation has a negative significant influence on its economic development while polarization has a positive significant impact. Montalvo & Reynal-Querol (2003) showed that religious polarization is superior to the explanatory power of religious fragmentation; however, in the case of China, we found that both of them have significant influences on economic development while fragmentation have a positive influence and polarization has a negative one. A key reason is that the political regime of provinces is different from countries; in addition, all provinces share the same law rule while countries face different ones. That is to say, according to the history of China, the equalizing the size of different religions can promote its economy, while centralizing in one religion will mitigate its economy in some extent. We try to explain these with the actual situation of China. The three main regions of China have remarkable difference in its economic development level, regional diversity, supportive policies, population distribution, economic diversity and religion development and so on. When it comes to economic growth rate, east is bigger than middle and middle is bigger than west. In fact, big difference exists in the distribution of religion in each region; some provinces have a number of religion sites while some provinces have so few ones. Different distribution of religion sites in each region and different economic diversity make different impacts of religion on economic development possible. Next, we study the impact of economic development on religion, by using religious fragmentation to measure religion, we can get table 4. While using religious polarization to measure religion development, we can get table 5. As table 4 shows, from the nationwide, economic development has a positive significant influence on religion development. When it comes to the three main regions of China, a huge difference exists between them. Due to the economic development of each region, the eastern economy has a positive significant influence on its religion development; the middle economy has a positive but insignificant one while western economy has a negative insignificant influence on religious fragmentation. After we take polarization into consideration, the same conclusion exists. When we turn to religious polarization, from the nationwide, economic development has a positive but insignificant influence on its religion development. Eastern economy has a positive but insignificant influence on religious polarization, middle economy has a negative insignificant one while western economy has a positive and significant influence on its religious polarization. When religious fragmentation was added in the model, the conclusion changed totally. From nationwide of China, the influence becomes negative and significant. The influence of the eastern economy becomes negative and stays insignificant, for the middle economy the influence becomes significant from insignificant and stays negative while the western economy stays the same. Whether from religious polarization to economic development or the inverse way, the impact is negative. One of the possible 6 reasons is that religious polarization reflects potential religious conflict in a society (Montalvo & Reynal-Querol (2003)). The smaller the polarization is, the bigger is the conflict. Given that conflict both causes and exacerbates poverty and interrupts development, religious polarization is used to explain some of society conflict and violence, especially after 9/11 (Nath, 2007). From the two-way interaction analysis, we show that two-way relationship exists between religious diversity and economic development in China. From the point of religious fragmentation, the two-way interaction is positive while that is negative for religious polarization. 5. Summary and Discussions Due to long history of China, religion development in China and its main regions has a complicated relationship with its economic development. We study religious diversity from its two characters: fragmentation and polarization, and we study the relationship between religious fragmentation and polarization and economic development. We found that bi-directional relationship between religion and economic development existed. From the nationwide of China, religious fragmentation has a positive significant promoting function on its economic development while religious polarization has a negative significant one, and different influences exist in eastern, middle and western of China. For the impact of economic development on religion, from the nationwide, economic development has a positive significant influence on religious fragmentation with or without polarization included as an explanatory variable, while the impact on polarization is positive but insignificant, it becomes negative and significant with fragmentation included as an explanatory variable. According to our empirical study, we can find that from 1987 to 2004, religion has been playing a significant role in Chinese economic development. The policy makers should take the effect of religion and the impact on religion into consideration. Due to the limit of data sources, we can’t study longer term relationship between religion and economic development in China. We can have further study on the relationship between religion and economic development by developing more accurate religion development indicators and getting longer time span data. Acknowledgement: The authors would like to thank Henry Luce Foundation for their funding support for the project of “Spatial Study of Chinese Religions and Society” and anonymous reviewers for their valuable comments and suggestions to improve the quality of the paper. Reference: [1]. Barro, R.J. and R. McCleary, 2003. Religion and economic growth.National Bureau of Economic Research. 7 [2]. Barro, R.J., 1999. Determinants of democracy. 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Guo, Qingwang and Junxue Jia, 2005. An Estimation of Total Factor Productivity in China: 1979—2004. Economic Research, Vol. 6 (5): p1-60. 8 Figures and Tables Fig. 1. Religious Fragmentation of Main Land China in 2004 Fig. 2. Religious Polarization of Main Land China in 2004 9 Table 1 descriptive statistics of variables Variable Description Obs Mean Std. Dev. rpgdp fra pol edu capi publ n+g+ 𝛿 real income per capita 522 522 522 522 522 522 522 2140.291 0.724 0.838 6.937 0.339 0.129 5.184 2186.746 0.154 0.104 1.142 0.098 0.050 2.469 religious fragmentation religious polarization average education attainment investment in physical capital policy variable Growth rate of labor & tech, dep. Min Max 374.784 18885 0 0.967 0 0.966 4.354 10.559 0.153 0.731 0.049 0.349 -2.202 15.688 Data source: Economic census 2004, Statistical material in 60 years of new China and http://chinadataonline.org/ Table 2 the impact of religion (one indicator) on economic development lnfra ln(n+g+ 𝛿) lnedu lncap lnpub (1) (2) (3) (4) (5) (6) (7) (8) lnrpgdp lnrpgdp lnrpgdp lnrpgdp lnrpgdp lnrpgdp lnrpgdp lnrpgdp 0.505*** 0.442*** 0.0714 -0.0961 (6.53) (4.26) (0.99) (-0.52) -0.0045 -0.0005 -0.0140 0.0104 -0.0020 0.00003 -0.0146 0.0205 (-0.36) (-0.03) (-0.66) (0.67) (-0.15) (0.00) (-0.69) (1.36) -0.475*** 0.0332 0.248 -0.443*** -0.411*** 0.103 0.245 -0.418*** (-3.44) (0.14) (1.25) (-2.78) (-2.85) (0.41) (1.23) (-2.79) 0.0298 0.239*** 0.0670** 0.0855* 0.0577** 0.280*** 0.0725** 0.0933** (1.06) (5.75) (2.15) (1.78) (1.98) (6.56) (2.35) (2.12) -0.108*** -0.271*** 0.0798 -0.135* -0.133*** -0.311*** 0.101* -0.0809 (-2.63) (-5.32) (1.43) (-1.94) (-3.10) (-5.77) (1.76) (-1.26) 0.137 0.153 -0.115 1.596*** lnpol (1.02) (1.05) (-0.85) (4.03) 7.486*** 6.853*** 6.280*** 6.959*** 7.221*** 6.579*** 6.295*** 7.343*** (28.40) (15.67) (15.24) (21.96) (26.57) (14.45) (15.26) (25.63) N 516 192 144 180 516 192 144 180 R2 0.973 0.986 0.993 0.980 0.971 0.984 0.993 0.982 A-R2 0.970 0.983 0.992 0.976 0.967 0.981 0.992 0.978 F Sta. 761.5 502.9 781.6 332.7 697.4 453.7 779.8 369.4 _cons t statistics in parentheses, A-R2 is adjusted R2 , F Sta. is F statistics. * indicates significance levels of p < 1%, ** indicates significance levels of p < 5%, *** indicates significance levels of p < 1%. All the tables following have the same expressions. 10 Table 3 The impact of religion (two indicators) on economic development (1) (2) (3) (4) lnrpgdp lnrpgdp lnrpgdp lnrpgdp 0.713*** 0.545*** 0.569*** -0.472** (7.46) (4.40) (3.92) (-2.48) -0.0074 -0.0020 -0.0106 0.0223 (-0.58) (-0.11) (-0.53) (1.50) -0.576*** -0.251 -1.058*** 2.037*** (-3.63) (-1.51) (-3.89) (4.76) -0.496*** 0.0169 0.268 -0.344** (-3.63) (0.07) (1.43) (-2.29) 0.0356 0.241*** 0.0336 0.132*** (1.28) (5.83) (1.10) (2.87) -0.0777* -0.249*** 0.150*** -0.120* (-1.88) (-4.73) (2.69) (-1.83) 7.558*** 6.923*** 6.348*** 7.106*** (28.96) (15.81) (16.32) (23.88) N 516 192 144 180 R2 0.974 0.986 0.994 0.983 A-R2 0.971 0.983 0.993 0.979 F Sta. 748.0 485.1 840.7 365.9 lnfra Ln(n+g+ 𝛿) lnpol lnedu lncap lnpub _cons Table 4 The impact of economic development on religion (fragmentation) lnrpgdp lnedu lncap lnpub (1) (2) (3) (4) (5) (6) (7) (8) Lnfra lnfra lnfra lnfra lnfra lnfra lnfra lnfra 0.166*** 0.232*** 0.121 -0.0194 0.150*** 0.201*** 0.212*** -0.0818** (6.53) (4.28) (1.01) (-0.54) (7.45) (4.42) (3.97) (-2.40) 0.200** 0.134 -0.0691 0.127* 0.184*** 0.138 -0.0934 0.122* (2.51) (0.78) (-0.27) (1.77) (2.91) (0.96) (-0.82) (1.90) 0.0538*** 0.0453 0.0640 0.0737*** 0.0223* 0.0150 0.0528*** 0.0891*** (3.38) (1.38) (1.58) (3.58) (1.75) (0.54) (2.93) (4.78) -0.0181 0.0013 0.0989 -0.110*** -0.056*** -0.0482 -0.107*** -0.089*** (-0.76) (0.03) (1.38) (-3.70) (-2.98) (-1.43) (-3.21) (-3.28) 0.976*** 0.710*** 1.680*** 1.040*** (16.73) (8.45) (21.62) (6.09) lnpol _cons -1.755*** -2.14*** -0.677 -0.549* -1.58*** -1.96*** -1.412*** 0.0816 (-7.44) (-4.51) (-0.74) (-1.93) (-8.46) (-4.95) (-3.44) (0.30) N 516 192 144 180 516 192 144 180 R2 0.134 0.258 0.348 0.158 0.460 0.488 0.872 0.327 A-R2 0.0435 0.114 0.189 -0.0112 0.402 0.385 0.840 0.186 F Sta. 3.448 2.645 2.917 1.334 17.98 6.883 35.33 3.265 11 Table 5 The impact of economic development on religion (polarization) lnrpgdp lnedu lncap lnpub (1) (2) (3) (4) (5) (6) (7) (8) lnpol lnpol lnpol lnpol lnpol lnpol lnpol lnpol 0.0164 0.0448 -0.0542 0.060*** -0.048** -0.0566 -0.112*** 0.064** (1.03) (1.05) (-0.85) (3.85) (-3.60) (-1.51) (-3.92) (4.56) 0.0168 -0.0051 0.0145 0.0043 -0.0602 -0.0636 0.0475 -0.0201 (0.34) (-0.04) (0.11) (0.14) (-1.51) (-0.57) (0.78) (-0.72) 0.032*** 0.0426* 0.0067 -0.0148* 0.0116 0.0229 -0.0239** -0.029*** (3.24) (1.66) (0.31) (-1.67) (1.45) (1.06) (-2.47) (-3.50) 0.039*** 0.0696** 0.123*** -0.0209 0.046*** 0.069*** 0.075*** 0.0004 (2.63) (2.24) (3.20) (-1.63) (3.92) (2.66) (4.38) (0.03) 0.385*** 0.436*** 0.479*** 0.193*** (16.73) (8.45) (21.62) (6.09) lnfra _cons -0.180 -0.258 0.437 -0.607*** 0.495*** 0.677** 0.761*** -0.501*** (-1.22) (-0.69) (0.89) (-4.97) (4.00) (2.06) (3.48) (-4.51) N 516 192 144 180 516 192 144 180 R2 0.163 0.222 0.340 0.181 0.477 0.463 0.871 0.345 A-R2 0.0749 0.0710 0.179 0.0160 0.421 0.355 0.838 0.208 F Sta. 4.318 2.171 2.818 1.567 19.31 6.231 34.85 3.542 12
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