The adverse economic effects of festivals 

How patron festivals of Mexico when coinciding with the planting and harvesting season negatively affected economic growth

October 11, 2022 10:30 am | Updated 04:18 pm IST

Do festivals help the economy grow faster or do they slow down the pace of economic growth?

Do festivals help the economy grow faster or do they slow down the pace of economic growth? | Photo Credit: Getty Images

“Religious festivals and economic development: Evidence from the timing of Mexican saint day Festivals,” Eduardo Montero and Dean Yang, October 2022, American Economic Review, Vol. 112, No. 10

As the festival season kicks off in India, businesses are excited about rising sales as consumers spend more money on buying new stuff. Many economists view the festival season as a great time for the economy, as they believe increased consumer demand will boost economic activity. But what impact do festivals have on the supply side of the economy? After all, as some heterodox economists would argue, there can be no consumption until there is production of goods and services in the first place. So, do festivals help the economy grow faster or do they slow down the pace of economic growth?

The impact on supply

“Religious festivals and economic development: Evidence from the timing of Mexican saint day festivals,” a paper by Eduardo Montero and Dean Yang, tries to answer this question. The authors study the impact of Catholic patron saint day festivals in Mexico on agricultural output and its long-term economic effects on different communities. The patron saint day festivals happen at different times in different municipalities of Mexico depending on local customs. This gives the researchers the opportunity to determine how the timing of these festivals could affect economic output in different municipalities.

Montero and Yang argue that when festival dates fall during the planting and harvesting seasons, this can negatively affect economic output. This is because labour and other resources get redirected towards festival-related activities rather than being invested in agricultural activities. When this happens, the negative economic effects may be particularly pronounced. In other words, festivals can come with a higher opportunity cost when they happen during certain seasons of the agricultural cycle. Festivals may also lead people to increase their consumption, which in turn lowers investment and significantly affects long-run economic growth. To be precise, the authors estimate that in the long-run, that is over two centuries, regions in which festivals coincided with the planting and harvesting seasons can end up with 20% lower household incomes.

Community ties

The authors, however, note that the festivals that coincide with crucial agricultural seasons may have some benefit in terms of promoting bonds within the community. In such cases, it could very well be that certain communities are willing to pay the economic price for better community ties. But one of the reasons people are willing to pay this economic price for festivals, the authors argue, could be that they do not really understand the actual long-term costs of their religious traditions. For example, as Montero and Yang note in their paper, an annual economic underperformance of even just 0.1% when compounded over 200 years can cause a 20% lesser income. This fact may not always be clear to people when they make their choices.

Finally, it is important to realize that local conditions may vary across municipalities and these could determine how people choose between following religious traditions and promoting economic growth. If religious traditions help to maintain smoother social relations in conflict-prone zones, certain trade-offs could well be worth the price. But such benefits may not be so easily captured by studies.

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