Does religious similarity influence the direction of trade? : Evidence from US bilateral trade with other 168 countries

Abstract: Despite interest in the influence of religion on economic activity by early economists like Adam Smith, modern economists have done little research on the subject. In light of the apparent religious fervour in many parts of the global economy, economists' seeming lack of interest in studying how religious cultures enhance or retard the globalization of economic activity is especially surprising. In general, trade theories have given less weight towards the reason for trade explanation on demand side. As a contrary to H-O theory Linder had proposed a theoretically sound and empirically consistent trade theory with a new claim for the reasons why countries trade on the demand side. To fill this gap, I use international survey data on religiosity for a broad panel of countries trading with US to investigate the effects of church attendance and religious beliefs on trade. The beliefs are, in turn, the principal output of the religion sector, and the believer alignment to a specific denomination measures the inputs to this sector. Hence, I used an extended gravity model of international trade to control for a variety of factors that determine trade, and I used two regression methods, OLS and WLS, to exploit the model to its fullest. I find that the sharing of same religious cultures by people in different countries has a significantly positive influence on bilateral trade, all other things being equal. These results accord with a perspective in which religious beliefs influence individual traits that enhance trade and economic performance in general. And my attempt to magnify religion as a means to trade is only a derivation of Linder’s overlapping demand theory.