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It’s Complicated: the Relationship Between GDP and Subjective Well-being

Author

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  • Matti Hovi
  • Jani-Petri Laamanen

    (School of Management, University of Tampere)

Abstract

This paper estimates and compares different models of the relationship between output and subjective well-being. New results on how GDP and SWB are interlinked in the short-run and in the long-run are provided. Interpretations of both earlier results and the results obtained in this study are emphasised. Although we only study static models, it appears that the relationships are more complex than acknowledged in earlier studies. In particular, how output is associated with well-being differs between the short-term and the long-term. The variation in subjective well-being coincides with the short-run cyclical fluctuations of output. Moreover, in Europe, economic growth has an independent temporary effect above and beyond its effect on the level of economic output. Our results are consistent with the majority of earlier studies but shed more light on the relationship between GDP and subjective well-being within countries over time.

Suggested Citation

  • Matti Hovi & Jani-Petri Laamanen, 2015. "It’s Complicated: the Relationship Between GDP and Subjective Well-being," Working Papers 1597, Tampere University, Faculty of Management and Business, Economics.
    • Handle: RePEc:tam:wpaper:1597
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    File URL: http://urn.fi/URN:ISBN:978-951-44-9730-8
    File Function: First version, 2015
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    References listed on IDEAS

    as
    1. Rafael Di Tella & Robert J. MacCulloch & Andrew J. Oswald, 2003. "The Macroeconomics of Happiness," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 809-827, November.
    2. M. Hashem Pesaran, 2007. "A simple panel unit root test in the presence of cross-section dependence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(2), pages 265-312.
    3. M. Hashem Pesaran, 2021. "General diagnostic tests for cross-sectional dependence in panels," Empirical Economics, Springer, vol. 60(1), pages 13-50, January.
    4. Jan-Emmanuel De Neve & George Ward & Femke De Keulenaer & Bert Van Landeghem & Georgios Kavetsos & Michael I. Norton, 2018. "The Asymmetric Experience of Positive and Negative Economic Growth: Global Evidence Using Subjective Well-Being Data," The Review of Economics and Statistics, MIT Press, vol. 100(2), pages 362-375, May.
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    Cited by:

    1. Petri Böckerman & Jani-Petri Laamanen & Esa Palosaari, 2016. "The Role of Social Ties in Explaining Heterogeneity in the Association Between Economic Growth and Subjective Well-Being," Journal of Happiness Studies, Springer, vol. 17(6), pages 2457-2479, December.

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    More about this item

    Keywords

    Subjective well-being; Life satisfaction; Happiness; Output; Income; Economic growth; Macroeconomics; Easterlin paradox; GDP; Potential output; Output gap;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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