Can Religion Explain Cross-Country Differences in Financial Development? A Global Perspective

Motivated by the limited evidence on the influence of religious beliefs on financial development in the current literature, this article aims to provide significant empirical evidence on the relationship between the two variables. In particular, we examine whether major religious beliefs (Christianity, Judaism, Islam, and Buddhism) have an impact on financial development globally. Using data for 82 developing and developed countries from 1975 to 2015 and controlling for income, openness and polity, our results show significant influence of religion on financial development. In particular, we found that Christianity and Islam have negative impact on financial development, while the impact of Judaism on financial development is positive. In addition, a weak positive effect of Buddhism on financial is also found from the results. This article has also found evidence that the effect of religion varies among different economies characterized by religious diversity. Our findings are robust to different measures of financial development and religious sub-groups as well as alternative estimators that take care of endogeneity.