| This dissertation consists of three essays on the impact of religion on economic choices in the context of an emerging market.;The first essay provides an overview of the rapidly growing Islamic finance industry as an example of the continued economic relevance of religious preferences. It emphasizes the limitations of standard, neoclassical models that define rational decisions as those emerging from a strictly self-centered and materialistic model of behavior. In doing so and by tracing the evolution of faith-based finance, it shows that nonmonetary preferences matter and that religion can exert a strong impact on economic behavior.;This second essay uses proprietary panel data on the distribution of bank deposits across all commercial banks in Pakistan to show that Islamic banks enjoy substantially higher deposit growth rates than other banks and that this difference persists even after various other determinants of bank demand are taken into account. Moreover, a recent financial crisis that triggered a significant fall in deposit growth rates actually had a positive impact on the demand for comparable religious accounts---despite the fact that Islamic banks were less stable than other financial institutions on almost every conventional measure. Together, these results reflect some of the complex factors influencing individual financial decisions and indicate that at least in the context of a religiously motivated population it makes economic sense to focus on the growth of institutional forms that reflect these preferences.;The third essay combines different empirical approaches and uses a unique dataset of customer level information to determine some of the reasons behind the difference in demand for faith based and conventional financial assets. We test various reasons for the disproportionate popularity of Islamic banks in our sample including a lack of awareness of alternative options, lower financial literacy, private information on management and the expectation of better services. Our results reject the hypothesis that Islamic banking customers are not aware of alternative options or that they are not financially literate. We also find that the performance of Hajj---the Islamic pilgrimage to Mecca---is the single most significant predictor for opening an Islamic account. This finding, plus the fact that Islamic banking customers are older, better educated, have traveled to more countries and maintain higher average balances, indicates generally higher income levels for Islamic banking customers. We conclude that in addition to individual religiosity, wealth also matters. At least as far as opening an Islamic bank account is concerned, faith appears to be a luxury that is easier to afford for the wealthy. |
