Abstract

This paper exploits relative price shocks induced by the Indonesian financial crisis to demonstrate a causal relationship between economic distress and religious intensity and investigate why it exists. Rapid inflation favored growers of staple crops and disfavored sticky wage-earners. I use pre-crisis wetland hectares and government occupation as instruments and dryland hectares and service occupation as “placebo instruments ” to estimate the impact of economic distress on religious intensity. Economic distress stimulates Koran study and Islamic school attendance but does not stimulate other social activities or secular school attendance. The results seem attributable to the role of religion as ex-post social insurance: credit availability reduces the effect of economic distress on religious intensity by roughly 80%, religious intensity alleviates needing alms or credit to meet basic needs at the peak of the crisis, and religious institutions facilitate consumption smoothing among villagers. I explain these findings in a model where religious intensity represents the degree of social insurance in which people participate and social sanctions facilitate religion’s function as ex-post insurance. Together, these results provide evidence that religious intensity responds to economic forces and suggest alleviating risk may

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