Abstract:
Research has shown that there are substantial variations by religion and religiosity in earnings. At the macro level, Barro and McCleary (2003) find a positive association between economic growth and religious beliefs but a negative association between economic growth and church attendance. At the individual level, while there have been some studies suggesting the association between religious attendance and earnings, only a few offer thorough empirical works to explain how exactly religious institutions affect the association: does it the leader, physical distance, or religious distance matter? Even fewer studies use data from non-western countries. To fill a void in the literature, the objective of this study is to analyse the relationship between religious attendance and earnings among Indonesian Muslim head of households and to see how aspects of religious institutions contribute to the formation of these relationships. More particularly, the study examines the socio-economic significance of Islamic boarding schools (Pesantren) using data from a survey of around 400 heads of households across three provinces in Indonesia. It finds that local community benefits from more intense interaction with the local religious leaders of Islamic boarding schools (Pesantren) than does the external community. But the direct benefit of living close to Pesantren only matters for religious participation, not for earnings. However, the study finds that religiosity is more positively significant for earnings of the community surrounding the Pesantren, probably due to networking effects. Hence, community involvement of religious leaders can indirectly and positively affect earnings of the surrounding community. The overall results suggest that Pesantren contribute to the formation of social capital, particularly in the form of religiosity, which contribute to the improved welfare of the surrounding community.

Keywords: religiosity; earnings; religious institutions; time allocation; religious and physical distance; Indonesia

Risti Permani (risti.permani@adelaide.edu.au)
School of Economics – University of Adelaide