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Ramadanomics

  • Published at 07:25 pm June 20th, 2016
  • Last updated at 07:27 pm June 20th, 2016

Ramadan fasting is like no other Islamic ritual. During the month of Ramadan, those who never perform the pre-dawn Fajr prayers get up even earlier to eat, only to abstain until dusk.

And after a month of that, even those who would otherwise never set foot in a mosque line up in unison to kneel towards Mecca.

For an entire month, from cooking, to attire, to TV, to intimacy -- the very lifestyle of a billion-plus people change. Except, perhaps, the aversion to pork, observance of, or at least respect to, the Ramadan fasting is arguably the most ubiquitous characteristic of Muslims.

Given its prevalence and ubiquity, Ramadan must have observable economic impacts. Exactly what might they be? In a fascinating paper, Filipe Campanile and David Yanagizawa-Drott of Harvard’s Kennedy School, provide us with some answers.

In short: Fasting makes us happier, if poorer.

At a macro level (ie the whole economy), the effects of Ramadan should show up in GDP statistics. If a large proportion of a country’s labour force is changing its lifestyle for a month, then we would think its GDP growth might be affected.

But then again, there is a “chicken and egg” (endogeneity, to be jargony) issue: Religious observance is affected by economic performance, after all -- for example, richer Western societies are typically less religious than poorer Muslim ones.

Campanile and Yanagizawa-Drott make use of the lunar Islamic calendar and the geographic locations of Muslim countries to get around the endogeneity issue.

To use their concrete example, Bangladesh and Turkey are both Muslim countries, but Turkey is considerably richer. Bangladesh is more tropical than Turkey.

Suppose that Ramadan fasting causes workers to become less productive. If this were to be the dominant channel through which fasting was affecting economic growth, we would expect to see a negative impact on wages

Therefore, when Ramadan is in summer -- as is the case now -- fasting hours will be longer in Turkey, and Bangladesh will have longer hours in winter.

That is, the difference in fasting hours between these two countries are due to vagaries of nature, not socio-cultural norms that are endogenous to economic development.

Exploiting the link between latitude and the lunar calendar, the authors calculate the average daily daylight hours in 167 countries during every Ramadan between 1950 and 2011.

After accounting for various countries and time-specific factors, they find a robust and statistically significant negative impact of fasting hours on economic growth.

Specifically, if the average daily fasting period increased from 12 to 13 hours, economic growth in a Muslim country would slow by 0.7 percentage point.

Countries where Muslims are not the majority are not affected at all by Ramadan hours.

Why does fasting slow economic growth?

Over time, economies grow because either labour supply rises as there are more workers, or labour productivity improves as workers become better at their jobs by learning new skills and/or acquiring new machines or techniques.

Economic slowdowns can similarly be disaggregated into supply and productivity shocks.

Moreover, considering everything else equal, changes in the labour supply will have a different impact on wages when compared to changes in labour productivity.

Specifically, suppose that Ramadan fasting causes workers to become less productive -- you know, you are hungry and hankering for some coffee, then doze off at work.

With all else equal, across the economy, if this were to be the dominant channel through which fasting was affecting economic growth, we would expect to see a negative impact on wages -- why would the capitalists pay workers as much if they weren’t as productive?

On the other hand, suppose that Ramadan fasting causes workers to abstain from working -- you know, you consciously take the afternoon off to go home and pray and prepare iftar and so on.

If this were the main channel, we would expect to see a positive impact on wages -- capitalists would compete for labour that has become more scarce, and bid up wages.

The authors explore the link between fasting hours and employment and wages in the manufacturing sector. They find that increases in fasting hours are associated with faster growth in wages.

Data suggests that, during Ramadan, believers tend to limit their labour supply to formal work, and that’s the reason for economic slowdown.

Why do Muslims work less during Ramadan? How is that decision linked to their subjective well-being or happiness? That’s the micro question (ie at the individual level) the authors investigate.

Using the World Values Survey data for 87 countries between 1981 and 2008, and focusing on Muslim men, authors explore the link between fasting and happiness and attitude to work.

Specifically, they find that Ramadan affects the relative priorities between religion and work among the faithful. Ramadan leads Muslims to believe that they care relatively more about religion than material benefits.

For me, personally, this Ramadan is like no other before. At one level, it’s the easiest -- short Antipodean winter days, mostly rainy, and thus not even feeling the thirst.

I empathise with our northerly brothers and sisters though -- I have memories of 18-hour fasts to be ended by a Fanta and a burger, to be followed by odd jobs that sustain many a university student.

On the other hand, the patience and restraint I must observe this year is unparalleled, and it’s the hope of a renewal that sustains me.

Ramadan Kareem.

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