Economic Distress Stimulates Religious Fundamentalism Daniel L. Chen⇤ January 8, 2020
Abstract When social conflict occurs along ethnic-religious lines instead of class lines is a subject of much debate. This paper exploits relative price shocks induced by the 1997 Indonesian financial crisis and variation in religious institutions across Indonesia before the crisis to identify the effect of economic distress on the relationship between religious institutions and social violence. Six results emerge. High religious intensity areas before the crisis have more social violence after the crisis. Stronger measures of religious intensity are more strongly associated with social violence. Social violence increases fastest where participation in Koran study also increases the fastest. Instrumenting for economic distress using relative price shocks suggests a causal relationship between economic distress and the relationship between religious intensity and social violence. Credit availability mitigates this effect. Economic distress alone did not stimulate social violence but stimulates it in the presence of religious institutions. I explain these findings in a model where high marginal utilities during economic distress increase incentives for group conflict where group conflict increases the budget of insurance groups. With volatility, religions with stronger sanctions or violence are more stable and successful. As volatility declines, benign groups and religions become relatively successful. Keywords: Religion, Club Goods, Conflict, Fundamentalism JEL codes: D71, D74, E21, G22, H41, O17, Z1, Z12
⇤ Toulouse Institute for Advanced Studies, daniel.li.chen@gmail.com. I am extremely grateful to my principal advisor, Esther Duflo, for her guidance and intellectual generosity. I would also like to thank Joshua Angrist, David Autor, Abhijit Banerjee, Eli Berman, Ivan Fernandez-Val, Chris Hansen, Seema Jayachandran, Ben Olken, Vijayendra Rao, Zaki Wahhaj, Motohiro Yogo, and especially Jeremy Tobacman, for comments. Maulina Cahyaningrum, Prima Fortunadewi, and Julius Kusuma provided outstanding translation assistance. Work on this project was conducted while I received financial support from the National Science Foundation Graduate Research Fellowship, MacArthur Foundation, Social Science Research Council, MIT Schultz Fund, National Institute of Child Health and Human Development, Russell Sage Foundation, John M. Olin Foundation, the Institute for Humane Studies, and the Kauffman Foundation. All mistakes are my own.
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