Wealth, Living Standards and Perceptions in a Cotton Economy: Evidence from the Cotton Reform in Burkina Faso

The cotton economy of Burkina Faso has been characterized by a changing rural environment for farmers since late nineties, which has come with the cotton reform and the resulting cotton boost. There have been slight improvements in living standards and rural households’ income while the subjective feeling of wealth has significantly increased. In this paper, I explore the channels through which the elements of the changing rural environment can bridge the wedge between subjective and objective measures of wealth. In addition to the basic determinants of subjective welfare that can be found in the happiness economics literature, namely absolute and relative income measures, health and social status (and expectations of future incomes), I investigate the empirical validity of institutional and technological change as well as the perceptions about the reform. I propose a bivariate ordered Probit model to deal with endogenous covariant perceptions in the assessment of subjective wealth. I find that the significantly positive evolution of subjective wealth has been driven by the relative measure of income, the feeling of progress through institutional and technological improvements and by enthusiastic perceptions about the reform’s effects on poverty alleviation and welfare. This evolution has been altered by the beliefs about a larger input access and better agricultural abilities resulting from the reform (comparison effect).