Believing and Practicing: How Religion Shapes Human Capital and Growth

We develop a dynamic model in which individuals allocate time between work and religious activities, and parents invest in their children's human capital and religious belief. The model delivers, in a unified framework, the two empirical regularities documented by Barro and McCleary (2003) and McCleary and Barro (2019): controlling for religious activities, stronger belief raises economic growth because it raises human capital investment; controlling for belief, more time spent on religious activities lowers growth by crowding out labor supply. While the labor-supply margin is individually optimal, the human-capital margin is not: parents do not internalize that greater human-capital investment crowds out future religious transmission through the socialization channel, leading to inefficiently high human capital in equilibrium under strong socialization externality. We extend this baseline framework in three directions. First, introducing a complementarity between religious belief and human capital—capturing the Protestant-ethic channel of Weber (1930)—we show that the efficiency of equilibrium depends non-monotonically on the strength of this complementarity. Second, allowing for cultural conflict between two religious groups à la Bisin and Verdier (2000),, we show that cultural intolerance depresses human capital investment and, if human capital raises labor productivity, reduces economic growth. Third, embedding the model in a system of cities, we show that larger, more productive cities endogenously attract workers who invest more in human capital and spend less time on religious activities, generating a negative cross-city relationship between city size and religiosity that is consistent with the empirical evidence in McCleary and Barro (2019).