Does Religious Similarity Matter in International Trade in Services?

Impacts of religion on trade in services were examined using gravity models with two estimation methods: Poisson pseudo‐maximum likelihood ( PPML ), to correct for heteroscedasticity and bias due to the exclusion of zero trade flow, and standard Heckman correction to compensate for sample selection bias. We found that religious similarity contributes to increased international trade in services by establishing ‘trust‐related institutions’. Second, religious pluralism (variety) fosters trade even more than religious similarity, suggesting that in facilitating trade, religious openness matters more than religious similarity. Third, a strong dominant religion discourages trade in services, whereas the presence of religious minorities encourages trade in services. A highly significant inverse Mill's ratio ( IMR ) result indicated the presence of sample selection bias, indicating that controls are necessary to prevent estimation bias. This study concluded that religion is an important determining factor for trade in services, positively affecting interpersonal trust and thereby reducing institutional distance between countries.