The Relationship Between Institutional Quality and Subjective Well-Being: A Study on Latin America

Since its earliest development, the field of economics has been concerned with identifying the fundamental drivers of human welfare. Economists such as Adam Smith, John Stuart Mill, and David Ricardo, who adhered to the classical economic view, emphasised that the basic elements that shape human well-being are concepts such as institutions, public policies, and the rule of law. In light of these discussions, this study analyses the relationship between the quality of formal institutions and subjective well-being in Latin American countries. While subjective well-being is measured by individuals’ life satisfaction, the quality of formal institutions is evaluated based on factors such as the level of democratisation, the legal quality index, and the share of government consumption expenditures in national consumption. The research uses Gallup World Poll (GWP) data covering Latin American countries for the period 2010-2021. The findings show that there is a significant and positive relationship between legal quality index and subjective well-being. In addition, it is observed that low levels of government consumption within total government expenditures positively impact subjective well-being. This study draws attention to the importance of institutional quality in ensuring social peace in Latin America by highlighting the effect of institutional improvements on the well-being of individuals for policymakers.