Economics 101: An economic portrait of the Holy Month of Ramadan

Many Muslims’ initial response to such findings would be rejection, as their faith tells them performing their obligations to Allah cannot cause them harm.

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This being the holy month of Ramadan, Muslims can be observed paying less attention to conventional work and leisure routines, and dedicating more time to religious duties. Does people’s increased worship cause the economy to slow down?

A 2015 paper by two Harvard economists, Filipe Campante and David Yanagizawa-Drott, tackled this precise question. Their work builds on a large scholarly literature examining the relationship between religiousness and economic performance, building on the seminal work of the early 20th Century sociologist, Max Weber.

Weber's famous treatise, The Protestant Ethic and the Spirit of Capitalism, argued that adhering to the beliefs and norms of their sect made protestants into harder workers and better entrepreneurs, and this opened the door for the evolution of modern capitalism, and with it the unprecedented living standards that humanity has experienced during the last 300 years.

This positive view of the effect of religion on economic growth was based on a sample size of one (Christianity). By the end of the 20th Century, economists had access to huge data sets on national income, and advanced computers to assist them in their formal analyses.

While acknowledging the value of macroscopic research on religion, Mr Campante and Mr Yanagizawa-Drott decided to – like Weber – restrict their attention to one specific case – Ramadan. From a scientific perspective, the variation in fasting hours across time and countries made Islam’s most holy month especially attractive – this year, UAE citizens fast from around 4am to 7pm and the Turks will fast from around 3.30am to 8.30pm, two more hours than the Emiratis. These differences help economists accurately pinpoint the effect of fasting on the economy’s performance.

The authors found that longer fasting hours do in fact have a negative, albeit modest, effect on economic growth in Islamic countries. While assessing the exact mechanism is difficult, the authors speculated that one of the reasons was decreased religious engagement. In particular, longer fasting makes it harder to be a practicing Muslim, which in turn causes people to decrease their engagement in community religious organisations. Other empirical research has established that, under certain circumstances, religious engagement helps build trust within society, which also improves the economy, and so longer fasting hours are paradoxically associated with a diminution in society’s ability to benefit from higher trust.

Many Muslims’ initial response to such findings would be rejection, as their faith tells them performing their obligations to Allah cannot cause them harm. While all research has its flaws, it is worth noting an observation by the authors that potentially reconciles Muslims’ faith in Allah’s guidance with the finding that Ramadan seemingly causes a decrease in economic growth.

By analysing survey data on people’s subjective sense of well-being, rather than relying on objective, material measures such as GDP per capita, Mr Campante and Mr Yanagizawa-Drott discovered that longer, more arduous fasts make people happier, taking into account any implicit adverse consequences on their economic well-being. Therefore, in addition to their afterlife rewards for performing their religious duties, these data suggest that Muslims fasting live more fulfilling lives.

These findings potentially echo the results of studies of Islamic finance. In the wake of the 2008 global financial crisis, numerous western, secular scholars examined the performance of Shariah-compliant banking systems compared to western ones. An emergent finding has been that Islamic finance offers superior stability, although it may come at the cost of profitability.

In all cases, more research, especially by Muslims living in Islamic countries, would be welcome.

We welcome economics questions from our readers through email at omar@omar.ec, or via tweets to @omareconomics.

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