How Interdependent are Cross-Country Happiness Dynamics?

We characterize evolution of cross-country happiness dynamics by two important factors. The first one concerns inertia, which we model in a non-linear and stochastic environment to reflect on how an agent’s own past level of happiness adapts to the current level. Second, we allow an explicit role of socio-economic ‘distance’ in facilitating dynamic interdependence among happiness levels. A series of hypotheses are tested on a long-time series data for a sample of twelve European countries. We find that inertia has a strong positive and non-linear effect on countries’ steady-state happiness convergence. The effects are more pronounced when relative income and macroeconomic variables are allowed to determine the correlation structure of happiness. The main novelty is the consideration of spatio-temporal dynamic aspects of happiness where complementarity in the latter across economies is rigorously tested and established. We find that after accounting for the effects of heterogenous socio-economic dynamics, cross-country happiness is indeed complementary: a unit rise in happiness level in one country raises happiness in others. Our analytical model and empirical findings have interesting socio-economic policy implications. Copyright Springer Science+Business Media Dordrecht 2015