Religion and Transition in Post-Communist Countries
∗
Pavol Minarik
April 26, 2011
Draft paper - please do not cite or circulate
Abstract
Property rights, contractual freedom and stability of institutions are crucial for economic development. In post-communist countries, these principles have been rediscovered after the revolution
of 1989 and a rapid institutional change has been observed in the following period. The paper
attempts to account for the dierent trajectories of transition and the dierent results among
post-communist countries. The explanation is based on the assumption that institutions are determined by fundamental cultural norms such as those represented by religion. Several channels
are identied that allow religion to inuence institutional change in a transition. Empirical results
using the data on religious adherence and the Index of Economic Freedom indicate following pattern: (1) Western Christianity have encouraged economic freedom, although less so with Catholics
than with other denominations; (2) Orthodox Christianity has been less supportive of economic
freedom; (3) presence of Muslim population has had a negative impact on economic freedom. A
more detailed analysis also shows that the impact is not uniform to all specic freedoms captured
by the Index of Economic Freedom. Western Christians tend to score higher in property rights
index, and business, trade and investment freedom. On the other hand, scal freedom is higher
and government spending lower where the population adheres to Orthodox Christianity or Islam.
Identication of such patterns seems important for understanding the post-communist transition
as well as for the evaluation of its successes and failures.
JEL classication: P26, P37, P52, Z12
Keywords: religion, post-communist transition, economic freedom
1
Introduction
Property rights, contractual freedom and stability of institutions are crucial for economic development
and welfare. It has been argued by many scholars, starting with Adam Smith (1776), that voluntary
exchange fosters division of labor and specialization, and hence leads to economic growth and wellbeing. In post-communist countries, these principles have been (re)discovered after the revolution of
1989. Institutional change has been rapid in the former Soviet bloc through the 1990s. However, the
paths of change have been quite dierent among the post-communists countries and so are the results.
What accounts for these dierences?
Institutions governing economic activities are not a natural occurrence, they are an outcome of policy choices and social institutions (Levine, 2005). Two dierent kinds of theories have been developed
to explain institutional diversity. For example, a research focusing on institutional settings in former
colonies has oered both legal and material explanations of diverse protection of property rights (see,
e.g., Beck et al., 2003, or Levine, 2005, for the comparison). The legal origins theory introduced by
La Porta et al. (1998) stresses the importance of legal history in development of a particular institution.
On the other hand, the endowment approach represented by Acemoglu et al. (2001) and Engeman and
Sokolo (1997, 2000) puts emphasis on material conditions in which an institution has evolved.
∗ IEL - International Program in Comparative Analysis of Institutions, Economics and Law, Universita di Torino, and
the Department of Institutional Economics, University of Economics, Prague. Contact: [email protected]
1
Yet another set of theories focuses on culture. It has developed over past decades comprising both
theoretical and empirical research. For example North (1990) writes about informal constraints [that]
come from socially transmitted information and are a part of the heritage we call culture.
1 Guiso et al.
(2006) dene culture as those customary beliefs and values that ethnic, religious, and social groups
transmit fairly unchanged from generation to generation. Empirical research (e.g. Guiso et al., 2006;
Stulz and Williamson, 2003; Tabellini, 2004) as well as historical and theoretical analysis (e.g. Greif,
1994) shows that culture matters, inuencing both institutions and economic outcomes.
To make a ner distinction, Lal (2001) usefully separates the level of institutions related to material
life (or material beliefs) as opposed to cosmological beliefs (or ideology). These two sets of beliefs have
quite dierent persistence; the cosmological beliefs are usually stable in time, while the material beliefs
evolve with changing material conditions. Lal (2001) presents several accounts to demonstrate how
material and cosmological beliefs have interacted in history. Without going into a further discussion on
whether the rst determine the other or the other way around, this paper focuses on the cosmological
beliefs.
In a transitional economy, institutions are a result of legal reforms interacting with the informal
rules abode by the people. Legal reforms represent the policy choice, while the informal rules originate
from the informal structure of the society. There is, however, a common basis underlying both political
decisions and social institutions. Those are the customary beliefs and values usually denoted as culture.
Considering the interaction between politics and culture, the quality of institutions as well as
the economic performance may vary, even if the culture is stable. In the short run, deeper aspects of
culture are constant (Guiso et al., 2006); however, the institutional change may be impelled by politics.
Similarly, economic policies may have short term impact on economic performance.
Although the
institutional change may inuence the culture, it cannot change it instantly and profoundly. Therefore,
there is a good reason to pay attention to culture and its impact on institutions.
This paper evaluates the impact of religion as an important part of culture on institutions in the
post-communist countries.
It proceeds as follows.
Section 2 reviews the previous research on the
relevance of religion for institutional and economic development. Section 3 explains how religion has
inuenced the institutional development in post-communist countries.
Section 4 reports empirical
estimates of the relation between religious adherence and the Index of Economic Freedom as a test of
the hypotheses on the impact of various religious denominations on institutional environment. Section
4 concludes.
2
Religion, institutions and economic outcomes
The connection between religion and economic performance has been explored in several papers in the
last decade. This research is a part of a broader debate on the relation between culture and economic
outcome (see Guiso et al. 2006 for an overview of the debate in economics). Religion is studied as a
historical condition of economic changes, following famous thesis of Max Weber (1905). Contemporary
impact of religion on economic performance is tested using cross-country data. Finally, some research
focuses on the relation between religion and institutions.
The relation between religion and economic growth has been empirically veried by several studies.
For example, Sala-i Martin et al. (2004) evaluated signicance of 67 dierent variables for economic
growth in a broad cross section of countries. Among other factors, they nd fraction of Confucian,
Muslim and Buddhist population signicant.
In a dierent study of religion and economic growth,
Barro and McCleary (2003) focus on the eect of church attendance and religious beliefs concerning
afterlife on economic growth. Again, religion is found to have a signicant eect. Similar results are
reported in Noland (2005): religious population shares have a signicant impact on growth and total
factor productivity.
1 For
the denition of culture, North cites Boyd and Richerson (1985, 2) who dene it as the transmission from one
generation to the next, via teaching and imitation, of knowledge, values, and other factors that inuence behavior.
2
It seems to be an established fact that religion matters. However, there exist diverse theories about
the precise mechanism through which religion aects economic life. The famous hypothesis of Weber
(1905) suggests that religious ethics (of Protestants) fosters capitalism and thus results in economic
growth.
This story has been challenged in economic literature.
the roots of capitalism are older than the Reformation.
Some authors
[who?]
suggest that
Others like Becker and Woessmann (2009)
claim that human capital, especially higher literacy among Protestants, is responsible for the economic
changes in the 19th Century. Another explanation of dierent economic outcomes among societies with
dierent religions is provided by institutional analysis.
The connection between religion and contemporary institutions has been studied by several economists
in last two decades. Stulz and Williamson (2003), for example, examine the impact of religion on legal
rules concerning creditor rights, shareholder rights and the rule of law.
They review the theologi-
cal dierences between Catholics and Protestants to explain why dierent institutions have evolved.
Creditor rights, for instance, developed in Protestant countries rst as the prohibition of usury by the
Catholic Church inhibited the emergence of credit markets. Stulz and Williamson (2003) test the relation between religion and variables representing various rules in corporate governance, credit markets
and investment protection. In several cases the negative eect of Catholic dominance is statistically
signicant, e.g. for creditor rights, eciency of judiciary system, and accounting standards.
In a dierent analysis, La Porta et al. (1997) tested the hypothesis suggested by Putnam et al.
(1993) that hierarchical religions, i.e. Catholicism, Eastern Orthodoxy and Islam, discourage horizontal
ties and the formation of trust. They have found a strong evidence that hierarchical religions are bad
for the performance of large organizations as the lower levels of trust may deter the formation of
horizontal networks of cooperation.
Regarding Islam, as contrasted with Christianity, several issues exist that eect economic life.
Kuran (2004) identies several institutional drawbacks of Muslim societies. Historically, Islamic law of
inheritance inhibited capital accumulation, a missing concept of corporation hindered organizational
development and waqf system led to inecient provision of public goods. Individually oriented contract
2
law combined with egalitarian inheritance system prevented ecient and durable pooling of resources.
Together with the ban of interest on loans, development of banks was impossible. The institutional
reforms of the last century and half have implemented many rules from Western legal systems, however,
the resulting institutional environment is still less conductive to entrepreneurship and growth. Kuran
(2004) notes that although Islam itself is not inherently incompatible with innovation and progress,
Islamic institutions remain a factor in Middle East's economic backwardness.
Alternative approach to the study of religion and its impact is used by Guiso et al. (2003) who focus
on attitudes rather than institutions. They use the World Value Survey data to estimate how religious
beliefs, education and practice inuence economic attitudes, such as attitude toward cooperation,
government, legal rules, working women, and private property.
On average religion is found good
for stronger institutions and religiosity is associated with thrift, individual responsibility and belief
that the market outcome is fair.
However, these eects dier among denominations.
For example,
Christianity fosters trust, but more so for Protestants. Religious participation increases trust in the
government for all denominations except Buddhists; however, the eect is stronger for Muslims and
weaker for Catholics and Protestants. Catholics and Protestants also want more private ownership,
while Muslims want less of it. The clear conclusion of Guiso et al. (2003) is that religion matters for
economic attitudes.
3
Why religion can matter for post-communist transition
The role of religion in the economic transitions has not attracted much attention so far. A single paper
by Kraznozhon (2007) evaluates the impact of religion on economic development in post-communist
countries. It focuses on the dominant religions in these countries and nd them signicantly related
to the economic output.
2 The
Western Christianity, mainly Catholicism, is found to be more positively
problem of inheritance and enterprises is developed in more detail in Kuran (2003).
3
associated with growth than other religions in the region. Islam-dominated post-Soviet countries have
done quite well, even outperforming Orthodox Christian ones. The results reported by Kraznozhon
(2007) suggest that the conditions of transforming post-communist countries are dierent from those
in other countries.
The present paper, however, focuses on the institutional environment, rather than economic development itself. Therefore, we shall seek to explain the dierences in the institutional development
among the post-communist transforming countries. Several channels of inuence can explain the role
of religion in the divergent development of institutional environment in the region.
The rst source of dierences among the post-communist transforming countries is the infrastructure of informal institutions.
Following the literature on how religion shapes the society we may
assume that the system of informal institutions would dier among countries based on their religious
composition. Indeed, if we look at the dissident movements in the communist countries before 1989,
we can see several clear distinctions among them - they dier in their structure, goals and unifying
principles. Informal structures of the society that has developed and survived under the communist
rule did not cease to exist with the change of regime.
Some of the dierences in the informal structure of societies in the communist countries can be
directly attributed to religion. Communist regimes were based on an atheist (MarxistLeninist) ideology, and they were generally hostile towards religion.
The response of religious communities was
diverse. The Catholic Church was well organized thanks to its hierarchical nature and it was often
able to build parallel structures to the regime, mostly informal but sometimes even formal.
3 Protes-
tants had the advantage of traditional independence from the state, while various informal Christian
groups beneted from being too small a target.
On the other hand, the Russian Orthodox Church had had a long tradition of close church-state
cooperation, and thus it could hardly form a dissident or parallel structure to the government.
Fi-
nally, Muslim were target of severe persecution, especially under Stalin, that included dismantling of
traditional structures built around mosques, religious schools and waqfs. Islam suered from the lack
of unifying organization combined with a mass deportation of several Muslim communities within the
Soviet Union.
[need more on this?]
Further dierences arise from interaction and identication with countries of adjacent regions.
Common historical experience and the sense of cultural connection have clearly provided an inspiration
for the transforming countries.
Religion has mattered either directly, providing the link to another
country, or as a proxy of the historical and cultural connection already mentioned. We can observe
the countries of the central Europe and the Baltic countries to focus their attention on the European
Union, while Ukraine and Belarus have maintained their attachment to Russia. There is a pro-Western
focus among the Caucasian nations, both in Armenia and Georgia with mostly Christian populations
and in the dominantly Muslim Azerbaijan. The post-Soviet republics of the Central Asia seem to be
halfway between Russia and the Muslim world.
The connections established above not only provide an inspiration but they enable a more direct
inuence from foreign states. The post-communist countries have often received advice and assistance
from abroad. The willingness to give and, more importantly, the willingness to accept an advice from
another country (or an organization) has been determined by cultural compatibility. Such compatibility
is, of course, one of the conditions for successful implementation of foreign legal norms. Sachs (2000)
suggests that capitalist institutions are favored in societies linked to world markets through cultural
connections, such as a dominant religion.
Regional integration, such as the EU accession of the post-communist countries in Europe, should
be regarded as a major inuence in the institutional development of the post-communist countries.
Candidate countries were not only advised but strongly motivated to adopt legal codes similar to those
of West European countries. Although the European Union is not explicitly organized on any religious
principle, it is clearly comprised of Christian countries only.
3 For example, Solidarity, the Polish
4 Note the ongoing discussion about
4 Cultural proximity of several European
trade union movement, was strongly associated with the Catholic Church.
accession of Turkey to the EU, for instance.
4
post-communist countries reinforced their ambition to join the Union. On the other hand, even the
EU is not homogeneous in its institutional environment, and there is a visible dierence between the
dominantly Catholic southern Europe and the northern Europe dominated by Protestants.
Finally, the political stability would have an impact on adoption of pro-market institutions. Religion
comes to play even in this respect.
Too much religious diversity have had destabilizing eect in
several regions of the post-communist world.
The most striking example can be observed in the
former Yugoslavia, where nationalism in combination with religious diversity had caused several armed
conicts. Similar problems have existed in certain parts of the Russian federation.
[this part probably need more references... or is it sucient? any suggestions for literature?]
Considering all these factors, several hypotheses can be formulated. First, adherence of population
to the Western Christianity increases economic freedom, but less so for Catholics than Protestants.
The rationale for this hypothesis comes from previous research on the relation between Western Christianity and pro-market institutions, with notable dierences between Catholics and Protestants, and
the cultural closeness of countries dominated by Western Christianity to the capitalist West. On the
contrary, Orthodox Christianity is predicted to have negative eect on economic freedom, since countries with Orthodox population do not have any cultural connection to a developed capitalist world.
Similarly Muslim population is predicted to have negative impact on economic freedom due to general
problems of pro-market institutions in Muslim countries.
4
Data
Measurement and data availability are among the main concerns when it comes to the research of both
religion and institutions. Religious adherence is a subjective personal characteristic. Its manifestation
range from a formal position in a religious organization through participation in religious performance
and contribution of time or material resources to religious bodies, to a simple declaration of adherence.
Likewise, institutional environment may have dierent structure, comprising formal and informal rules
governing various aspect of human life. Apparently identical legal norms may have profoundly dierent
impact on actual behavior. On the other hand, seemingly dierent institutions may produce similar
results.
5
The data on religious adherence are from Barrett et al. (2001).
in academic studies before.
These data have been used
Although there have been some questions raised by scholars about the
potential bias of the World Christian Encyclopedia and the World Christian Database as its successor,
they seem quite reliable. According to an assessment byHsu et al. (2008) that compare estimates of the
WCD to four other data sources (World Values Survey, Pew Global Assessment Project, CIA World
Fact book, and the U.S. Department of State), the estimates are highly correlated.
[to be added: more on WCE data]
Unlike some previous research,
6 this paper does not take into account religious beliefs or religious
practice such as church attendance. The channels of inuence that have been identied above are not
primarily based on religious performance; rather the religion stands for cultural attributes that extend
beyond rituals and faith. Therefore, the distribution among various denominations matters more than
actual religious practice or beliefs.
Institutions are measured as the economic freedom. Data are taken from the Index of Economic
Freedom (Heritage Foundation, 2006). The index is calculated as an average of nine dierent components measuring dierent aspects of economic freedom. All partial indices are constructed to range
from 0 to 100, higher score meaning more economic freedom. In the regression analysis both overall
index and several partial indices are used.
Business freedom index reects several factors burdening starting and closing of a business as
measured by the World Bank's Doing Business study.
5 Via Robert Barro's data set.
6 Barro and McCleary (2003),
Trade freedom index uses a trade-weighted
for example, used the World Value Survey data on church attendance and belief in
heaven and hell, while the particular denomination of a believer is less important in their analysis.
5
NOTE
Table 1: Summary statistics
Standard
Variable
Mean
deviation
Minimum
Maximum
Index of economic freedom
54.53
9.64
29.4
77.7
- Property rights index
42.99
16.14
10
70
- Business freedom index
61.48
12.37
30
100
- Trade freedom index
68.64
11.61
17.6
88.4
- Investment freedom index
51.97
18.48
10
90
- Fiscal freedom index
70.49
13.07
37.3
94.1
- Government spending index
56.67
23.04
0
95.5
Catholic fraction
0.240
0.323
0
0.922
Orthodox fraction
0.244
0.269
0.001
0.782
Other Christian fraction
0.097
0.115
0.001
0.467
Muslim fraction
0.201
0.294
0
0.872
log(GDP)
8.674
0.808
6.819
10.118
Former Soviet republic dummy
0.544
0.499
0
1
EU dummy
0.398
0.490
0
1
Baltic region dummy
0.116
0.320
0
1
Caucasian region dummy
0.112
0.316
0
1
Central Asian region dummy
0.153
0.361
0
1
Note: N=294
average tari rate, plus a penalization for non-tari barriers.
Investment freedom index evaluates
various restrictions on investments. It is produced by deducting several points from the ideal score
for each particular restriction harmful to investors. Property rights are evaluated rather categorically,
with eleven dierent levels reecting various protection of private property.
7
Fiscal freedom index reects top tax rates on personal and corporate income and total tax revenue
as a percentage of GDP. Government spending index measures total government expenditures as a
percentage of GDP. Both indices use non-linear (quadratic) formulas to penalize higher taxation or
spending more severely.
Other partial indices, not analyzed in this paper, are nancial freedom,
monetary freedom and freedom from corruption.
The index of economic freedom generally measures what may be called capitalist or pro-market
institutions.
This is, of course, a quite ambiguous concept.
the method of their quantication may be disputed.
Choice of particular institutions and
Several partial indices depend on subjective
evaluation, although based on data from sources external to the Heritage Foundation or the Wall
Street Journal. Some indices are not really continuous, such as the property rights index, due to the
nature of evaluated institutions. Finally, construction of the overall index could be criticized not only
for the choice of particular aspects of institutional environment but also for equal weight given to all
partial indices. Nevertheless, the index of economic freedom is one of the few available measures of
institutional environment and probably the one that provides the best data for the present analysis.
Several control variables are used in the model. First, GDP per capita (PPP in 2005 international
dollars, from World Bank database) is used to measure the level of economic development.
It is
generally assumed that institutional environment is a prerequisite, rather than an outcome, of economic
progress.
However, it is well possible that certain level of development is necessary for people to
appreciate economic freedom, especially if contrasted with social security oered by socialist states.
Second, Soviet past is controlled for. The legal, political and economic system was not homogeneous
7 Although,
if a country falls between two categories, it receives an intermediate score.
6
among the Communist countries before 1990. The post-Soviet countries have an experience with the
purest implementation of the Soviet methods of conducting economic policy, which may have certain
eect on their following institutional development.
Finally, regional dummies are used to control for certain specic conditions.
Countries that are
members of the European Union (as of 2007) have had an advantage of geographic proximity to the
West coupled with the incentives for an institutional change originating from prospective membership
in the EU. Baltic countries are a conjunction between the post-Soviet and the EU set.
Moreover,
compared to other post-Soviet countries they had experienced a substantial period of independence
before becoming a part of the USSR. Caucasian region and Central Asian region dummies reect the
proximity of these countries to the region of Middle East and Asia respectively as well as other regional
8
specics.
[to be added: legal origins]
[what else? any other necessary controls?]
5
NOTE
Regression results
5.1
Overall achievements in economic freedom
Regression results support the hypotheses proposed above.
Table 2 presents the OLS estimates of
relationship between religion and the index of economic freedom with dierent model specications.
Except for Catholics, results on religious fraction are quite robust. Both Orthodox and Muslim fraction
have negative impact on economic freedom; negative eect of Muslim population is clearly greater in
magnitude. The impact of Catholic fraction is rather negative, however, results are not signicant in
some specications. Finally, other Christians - belonging neither to the Catholic nor to the Orthodox
Church - seem to have a strong positive inuence on the economic freedom.
Similar results could be obtained with slight modication to the sample or the model. Comparison
of WCD data to other sources on religious adherence by Hsu et al. (2008) suggest that the data
on some countries may over- or underestimate the Christian population, including among others the
Czech Republic, Kazakhstan, Moldova and Estonia. Excluding any of these countries, or all of them,
does not signicantly change the results regarding religious fractions. Similarly, focusing solely on the
dominant religion - the approach taken by some of the previous research (e.g. Kraznozhon, 2007) does not change the results signicantly.
Regarding other variables included in the model, all but GDP per capita seem relevant.
Time
trend captures the average improvement in time. Regional dummies are mostly signicant conrming
the intuition about the regional dierences in the development of institutional environment. Including
regional dummies also reveals the signicance of Soviet past that has a negative impact on economic
freedom.
[to be added: legal origins - signicant, but do not change results on religion very much]
5.2
Property rights; business, trade and investment freedom
Similar patterns can be observed with several components of the Index of Economic Freedom reported
in Table 3. Property rights index is negatively eected by presence of Catholic, Orthodox and Muslim
population. The eect of Orthodox and Muslim fraction is more than three times greater than the
eect of the Catholic fraction. On the contrary, the other Christian fraction has signicant positive
eect on property rights. Business freedom is eected in the same way, although magnitude of impact
is lower for all religious fraction in the model. Interestingly, the average of property rights index and
business freedom index is decreasing in time. Furthermore, better economic performance (as GDP per
8 E.g.
all countries in these two regions (except for Georgia) are land-locked. If Sachs (2000) is right, this should have
had negative impact on the development of the institutions favorable to capitalism.
7
Table 2: Estimates of the relationship between religion and economic freedom
Dependent variable: Index of economics freedom
Independent variable
Catholic fraction
Orthodox fraction
Other Christian fraction
Muslim fraction
Years of transformation
(1)
(2)
(3)
(4)
-0.65
-1.95
-7.27 ***
-5.27 **
(2.16)
(2.60)
(2.07)
(2.20)
-9.99 ***
-10.37 ***
-15.25 ***
-11.08 ***
(2.42)
( 2.48)
(2.16)
(2.23)
25.30 ***
23.32 ***
7.80 *
17.97 ***
(4.60)
(5.30)
(4.54)
(4.85)
-15.84 ***
-15.61 ***
-20.21 ***
-20.96 ***
(2.54)
(2.59)
(2.41)
(2.31)
1.13 ***
1.09 ***
1.15 ***
1.12 ***
(0.12)
(0.13)
(0.10)
(0.11)
log(GDP)
Former Soviet republic
dummy
0.79
-0.09
(0.89)
(0.76)
0.12
-6.92 **
(0.98)
EU dummy
Baltic region dummy
Caucasian region dummy
Central Asian region
dummy
Intercept
Adjusted
R2
(1.33)
6.62 ***
2.46 *
(1.03)
(1.32)
4.62 ***
10.92 ***
(1.233)
(1.69)
9.85 ***
13.83 ***
(1.23)
(1.43)
1.83
7.86 ***
(1.44)
(1.83)
44.30 ***
38.47 ***
44.96 ***
47.05 ***
(2.30)
(7.07)
(1.91)
(5.98)
0.522
0.520
0.673
0.700
Note: N=294 in all regressions. Standard errors in parentheses; * signicant at 10%; ** signicant at
5%; *** signicant at 1%.
8
Table 3: Religion and property rights, business, trade and investment freedom
Dependent variable
Independent variable
(2)
(1)
Property rights
Catholic fraction
Orthodox fraction
Other Christian fraction
Muslim fraction
Years of transformation
log(GDP)
Former Soviet republic
dummy
EU dummy
Baltic region dummy
Caucasian region dummy
Central Asian region
dummy
Intercept
2
Adjusted R
Business
freedom
(4)
(3)
Trade freedom
Investment
freedom
-11.55 ***
-8.26 ***
3.19
-3.22
(3.59)
(3.20)
(3.88)
(4.85)
-34.46 ***
-23.00 ***
-4.52
-2.83
(3.64)
(3.25)
(3.94)
(4.93)
27.59 ***
19.14 ***
19.59 **
36.72 ***
(7.92)
(7.06)
(8.56)
(10.71)
-39.6 ***
-18.63 ***
-17.14 ***
-21.57 ***
(3.78)
(3.37)
(4.08)
(5.11)
-0.50 ***
-0.53 ***
1.38 ***
-0.37
(0.17)
(0.15)
(0.19)
(0.23)
-2.95 **
1.63
-4.51 ***
-1.61
(1.24)
(1.11)
(1.34)
(1.68)
-17.75 ***
2.75
1.04
-5.72 **
(2.16)
(1.93)
(2.34)
(2.93)
16.42 ***
8.29 ***
0.53
4.83 *
(2.15)
(1.92)
(2.32)
(2.91)
-9.94 ***
0.72
11.61 ***
24.95 ***
(2.75)
(2.46)
(2.98)
(3.72)
11.21 ***
7.11 ***
9.81 ***
10.89 ***
(2.34)
(2.09)
(2.53)
(3.17)
1.82
0.36
2.20
6.59
(2.99)
(2.66)
(3.23)
(4.04)
82.70 ***
58.31 ***
93.23 ***
75.27 ***
(9.77)
(8.71)
(10.56)
(13.21)
0.714
0.613
0.354
0.601
Note: N=294 in all regressions. Standard errors in parentheses; * signicant at 10%; ** signicant at
5%; *** signicant at 1%.
capita) has a negative impact on property rights. Results for monetary freedom, nancial freedom and
corruption are similar to the results for business freedom (not reported).
The results are slightly dierent with trade and investment freedom.
The Muslim fraction has
negative impact and the other Christian fraction positive impact - consistent with the results on
property rights and business freedom.
is not statistically signicant.
However, the impact of Catholics and Orthodox Christians
In case of trade freedom, the model explains only 35% of variance,
signicantly less than in all other regressions.
5.3
Fiscal freedom and government spending
Some of the components of the Index of economic freedom produce dierent results (Table 4). Freedom
from government spending index shows a radically dierent pattern from what has been reported above.
Orthodox fraction has signicant and positive eect on this index, while Catholic and other Christian
fractions have signicant and negative eect. Muslim population has no statistically signicant impact.
Fiscal freedom, reecting top tax rates and the total tax revenue to GDP ratio, is positively eected
9
Table 4: Religion, scal freedom and government spending
Dependent variable
(1)
Independent variable
Government
spending
Catholic fraction
Orthodox fraction
Other Christian fraction
Muslim fraction
Years of transformation
log(GDP)
Former Soviet republic dummy
EU dummy
Baltic region dummy
Caucasian region dummy
Central Asian region dummy
Intercept
Adjusted
R2
(2)
Fiscal freedom
-15.29 **
0.46
(6.31)
(3.58)
12.98 **
12.67 ***
(6.41)
(3.64)
-40.58 ***
12.87
(13.95)
(7.91)
-1.34
1.76
(6.65)
(3.77)
1.27 ***
1.58 ***
(0.30)
(0.17)
-1.69
5.02 ***
(2.19)
(1.24)
8.52 **
-7.88 ***
(3.81)
(2.16)
3.45
-17.15 ***
(3.78)
(2.15)
12.79 ***
24.68 ***
(4.85)
(2.75)
16.55
16.88 ***
(4.12)
(2.34)
22.55 ***
12.72 ***
(5.27)
(2.99)
47.97 ***
7.70
(17.20)
(9.75)
0.565
0.566
Note: N=294 in all regressions. Standard errors in parentheses; * signicant at 10%; ** signicant at
5%; *** signicant at 1%.
by the Orthodox fraction. Other religious fractions are not statistically signicant.
There is, of course, profound dierence between indices examined in the previous section and
those discussed here. Institutions represented by the indices on property rights, and business, trade
and investment freedom concern regulation of conduct between private persons. Freedoms discussed in
this section concern direct relations between government and private sphere - taxation and government
spending. Governments are, no doubt, involved in the enforcement of private law and they can severely
interfere with private enterprises. However, this two modes of government activity are quite dierent.
Therefore, it is not surprising that the eect of religion is dierent in each case.
6
Conclusion
Empirical results support the hypotheses about the impact of religion on institutional development
in the former communist countries.
Western Christianity has encouraged more economic freedom
during the transition period, although less so with Catholics than with other denominations. Orthodox
10
Christianity has been less supportive of free market institutions, and the presence of Muslim population
has had even stronger negative impact on economic freedom.
These results support the previous
literature focusing on religion and institutions. In addition, they conrm the importance of religion
even in countries that have been under the atheist communist rule for several decades.
Several explanations have been oered to account for the inuence of religion.
They concern
informal structure of society developed under the communist rule, dierent aspirations and advice
from abroad and regional integration of post-communist countries. All these explanations are rather
tentative and they shall be tested in further research. Another research approach is possible as well,
similar to Guiso et al. (2003), that would focus on people's attitudes in post-communist countries
to see how religion, or other factors, have inuenced their way of thinking during the transition. A
more detailed analysis should also pay attention to the role of religion in political process in the
post-communist transition.
Awareness of the relationship between religion, politics and institutions
governing economic life seems quite important for understanding the post-communist transition as well
as for the evaluation of its successes and failures. Moreover, it shall provide some hints with regard to
future transitions from central planning to market economy.
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