Economic Research Forum (ERF)

Religion as a catalyst for trade: evidence from Turkish exports

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Does religious affinity help firms to get access to foreign markets? This column reports evidence that sharing Islamic beliefs with potential customers abroad eases the first-time access to export markets of manufacturing firms active in Turkey. The nexus between religiosity and trade may help to explain the recent tightening of Turkey’s trading relationship with the Muslim world – and between Muslim-majority countries more generally.

In a nutshell

Religious affinity between countries can have powerful effects on the trade flows between them.

Evidence from Turkey indicates that commonality of Islamic beliefs significantly eases firms’ first-time entry into export markets.

Adherence to the same religion influences firms’ entry into export markets significantly more for producers of ‘trust-intensive products’ – goods for which the difficulty of assessing their intrinsic characteristics may entail a higher amount of trust in the trading relationship.

Is religion good for the economy? This question has long been debated in economic research, which now has an extensive body of empirical evidence on the economic impact of religious beliefs. Barro and McLeary (2003) find positive effects of religiosity on growth. Guiso et al (2003) confirm that on average, religious beliefs are associated with economic attitudes that are conducive to higher per capita income and growth.

Nevertheless, there are some exceptions and some differences across religious denominations. As an example, regardless of the denomination, religiously raised people display higher intolerance towards diverse cultures, a trait that is more evident among Hindus and Muslims (Guiso et al, 2003). For adherents of Islam, further studies document some negative perceptions of the new and of diversity by some of them, and go on to discuss the likely negative impact of these perceptions on economic flourishing (Chaney, 2008). Such aversion towards diverse religions and cultures in Islam could turn into a cultural barrier to international trade.

Nonetheless, Islam considers trade to be as important as production, since it adds value to goods and brings benefits to both trading partners (Helble, 2007). Islam can thus have an important and selective effect on the trading relationships of its adherents with foreign customers. In other words, the sharing of Islamic values with trading partners should create preferential export market access compared with access to markets where trading partners belong to different religious denominations.

Along these lines, in a recent empirical study (Lo Turco and Maggioni, 2018), we show that sharing Islamic beliefs with potential customers abroad eases the first-time foreign market access of manufacturing firms active in Turkey.

Although Turkey is an almost totally Muslim country, the extent of religiosity across its provinces is heterogeneous. It is also unrelated to local economic conditions. A further trait of interest is the growing importance of religion in the political, social and economic life of the country since the AKP came to power in 2002 (Buğra and Osman, 2014).

Analysing the nexus between religiosity and trade in Turkey in the 2000s sheds light on one of the factors that is potentially driving the recent observed tightening of the country’s trading relationship with the Muslim world and, in general, among Muslim-majority countries.

For example, according to the WITS-COMTRADE database, exports of low- and middle-income countries to peers in the same group grew by 65% between 2000 and 2016, while the share of exports going from Muslim-majority countries to peers in the same group increased by 125%. (We define Muslim-majority countries as those in the top 25% of the distribution of the share of Muslims in the population in 2000, therefore with a Muslim share higher than 32.5%.)

The working hypothesis of our empirical analysis is that religious affinity between trading partners fosters bilateral trust which, in turn, favours cooperation between home and foreign workers involved in a firm’s market penetration function. As a result, export market access costs are substantially lower when trading partners share the same religious beliefs.

As a measure of potentially active religious Muslims and/or religiously raised people across Turkish provinces, we use the number of mosques per inhabitant (Guiso et al, 2003) and, then, capture a different Islamic identity across space. We show that this indicator strongly reflects people’s attachment to religion, and their conservative attitudes and distrust towards diverse confessions. By combining this measure with the share of Muslims in the destination market, we study the role of religious affinity in fostering a firm’s probability of getting access to an export market.

Our empirical findings show that commonality of Islamic beliefs significantly eases firms’ first-time entry to export markets. This effect is robust to controls for existing trade, migration, and cultural, linguistic, spatial and colonial linkages. The effect is also robust to a control for Muslim partner-oriented trade policy, which may have favoured politically connected religious business groups during the period that we study.

The evidence points to heterogeneous effects of religious mismatch according to the denomination shared by people in the destination country. The share of Jews in the destination country has the most detrimental effect for Turkish firms’ export entry with respect to other non-Muslim religions.

The export-enhancing effect of religious affinity seems to work through reduction of export sunk costs rather than through similarity in preferences. In fact, sharing Islamic beliefs has no impact on the entry export value.

Adherence to the same religion also influences firms’ export entry significantly more for producers of ‘trust-intensive products’ – that is, goods for which the difficulty of assessing their intrinsic characteristics may entail a higher amount of trust in the trading relationship. In this respect, our evidence suggests that the reduction in export sunk costs is likely to be related to an increase in trust among contracting parties.

The role of religious ties is attenuated by export experience and presents a declining return on exports that fades away starting from the third year of exports to the destination country. Finally, religious similarity reduces the probability of exit from the first export destination.

Our findings support the view that the innate trade orientation of Islam, coupled with evidence on Muslims’ preference for religiously similar partners, can drive selective export behaviour by firms. Hence, by affecting the extensive margin of trade, religious affinity can contribute significantly to determining countries’ aggregate trade flows and their spatial evolution.

Further reading

Barro, RJ, and R McCleary (2003) ‘Religion and Economic Growth’, NBER Working Paper No. 9682.

Buğra, A, and S Osman (2014) New Capitalism in Turkey: The Relationship between Politics, Religion and Business, Edward Elgar.

Chaney, E (2008) ‘Tolerance, Religious Competition and the Rise and Fall of Muslim Science’, mimeo, Harvard University.

Guiso, L, P Sapienza and L Zingales (2003) ‘People’s Opium? Religion and Economic Attitudes’, Journal of Monetary Economics 50: 225-82.

Lo Turco, A, and D Maggioni (2018) ‘The Effects of Islamic Religiosity on Bilateral Trust in Trade: The Case of Turkish Exports’, Journal of Comparative Economics 46(4): 947-65.

Helble, M (2007) ‘Is God Good for Trade?’, Kyklos 60: 385-413.

 

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