The Impact of Exposure to Other Countries on Life Satisfaction: An International Application of the Relative Income Hypothesis

The cause of international differences in life satisfaction is usually ascribed to differences in living standards. Yet, despite improving living standards in a lot of middle-income countries, significant differences in life satisfaction between middle- and high-income countries remain. This paper examines if there is an international comparison effect and assesses to what extent the relative income hypothesis can be applied to explain international differences in life satisfaction. We test this by analyzing how exposure to other countries impacts life satisfaction. It is hypothesized that higher exposure to other countries in low- and middle-income countries has a negative effect due to increased aspirations and relative deprivation, while the opposite holds true for rich countries. We draw on data from the World Value Survey, the World Bank and the KOF Globalization index to perform a multilevel analysis. The results suggest that an international comparison effect indeed exists and is capable of partially explaining international differences in life satisfaction. Additional analyses reveal that people in lower income classes, in all countries, are affected more by exposure to other countries, indicating that individual characteristics are important when assessing the impact of exposure on life satisfaction. We demonstrate the robustness of these findings by showing that both sub-indicators of exposure, informational flow and international contact, have an impact on life satisfaction that is similar to that of our overall exposure-index.