Religion influences people's decision to become an entrepreneur

David B Audretsch, Werner Bönte, Jagannadha Pawan Tamvada , 9 July 2007

Although a number of economists have argued that religion plays a fundamental role in shaping economics, only scant attention has recently been given as to how and why religion might act as a determinant of economic activity. It has been suggested that values and attitudes are as much a part of the economy as institutions and policies are. In addition, empirical findings raise several important but unanswered questions: (1) What are the channels by which religion influences economics and (2) Are the impacts on economic activity the same across all religions? The authors of DP6378 aim to shed light on these questions by examining whether religion has any impact on decision-making that promotes economic growth i.e. the decision to become an entrepreneur. Based on a large-scale data set of nearly ninety thousand workers in India, the paper finds that religion shapes the entrepreneurial decision.

Recent studies have suggested that entrepreneurship may be a key factor in generating growth and development, so the paper links the decision of people in India to start a business to their religion. India is rich with diverse religions, some of them such as Islam and Christianity are found to be conducive to entrepreneurship, while others, and in particular Hinduism provides little encouragement or value to change one's situation in terms of material well being. According to Hinduism, every person's purpose in life is to attain liberation, which essentially is freedom from re-birth. One should live to understand reality and not for transitory material pursuits. Historically Hindus were classified into four major classes or castes according to their occupation. The caste system that initially categorized individuals into different classes persisted across generations and later determined the occupations to a great extent.

The authors find that the least entrepreneurial people tend to be Hindus in the lower class. One reason for this might be the long shadow of the caste system that persists and limits freedom of occupational choice to some extent not only to all individuals of backward classes but to Hindus in particular. The paper suggests a link between religion and economic behaviour and proves fruitful for future research not just on the impact of religion on entrepreneurial activity, but also on the effects in a particular location context. One clue on the importance of location is provided by the results of studies showing that Indian immigrants in the United Kingdom actually exhibit a greater desire to become entrepreneurs.

DP6378 Religion and Entrepreneurship

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URL: http://www.cepr.org/pubs/new-dps/dplist.asp?dpno=6378.asp
Topics: Productivity and Innovation
Tags: caste-system, entrepreneurship, India, religion

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