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Will GDP growth increase happiness in developing countries?

  • Andrew E. Clark

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), IZA - Institute for the Study of Labor - IZA)

  • Claudia Senik

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics, PSE - Paris-Jourdan Sciences Economiques - CNRS - Institut national de la recherche agronomique (INRA) - EHESS - École des hautes études en sciences sociales - ENS Paris - École normale supérieure - Paris - École des Ponts ParisTech (ENPC), UP4 - Université Paris-Sorbonne)

This paper asks what low-income countries can expect from growth in terms of happiness. It interprets the set of available international evidence pertaining to the relationship between income growth and subjective well-being. Conforming to the Easterlin paradox, higher income always correlates with higher happiness, except in one case: whether national income growth yields higher well-being is still hotly debated; essentially, the question is whether the correlation coefficient is "too small to matter". The explanations for the small correlation between income growth and subjective well-being over time appeal to the nature of growth itself (e.g. negative side-effects such as pollution), and to the psychological importance of relative concerns and adaptation. The available evidence contains two important lessons: income comparisons do seem to affect subjective well-being even in very poor countries; however, adaptation may be more of a rich country phenomenon. Our stand is that the idea that growth will increase happiness in low-income countries cannot be rejected on the basis of the available evidence. First, cross-country time-series analyses are based on aggregate measures, which are less reliable than individual ones. Second, development is a qualitative process that involves take-offs and thresholds. Such regime changes are eye-visible through the lens of subjective satisfaction measures. The case of Transition countries is particularly impressive in this respect: average life satisfaction scores closely mirror changes in GDP for about the first ten years of the transition process, until the regime becomes more stable. If subjective measures of well-being were made available in low-income countries, they would certainly help measuring and monitoring the different stages and dimensions of the development process.

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Date of creation: Nov 2010
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Handle: RePEc:hal:psewpa:halshs-00564985
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  1. David G. Blanchflower & Andrew J. Oswald, 2005. "Happiness and the Human Development Index: The Paradox of Australia," NBER Working Papers 11416, National Bureau of Economic Research, Inc.
  2. 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.
  3. Akay, Alpaslan & Martinsson, Peter, 2011. "Does relative income matter for the very poor? Evidence from rural Ethiopia," Economics Letters, Elsevier, vol. 110(3), pages 213-215, March.
  4. Bernard M.S. van Praag & Paul Frijters, 1999. "The measurement of welfare and well-being; the Leyden approach," School of Economics and Finance Discussion Papers and Working Papers Series 071a, School of Economics and Finance, Queensland University of Technology.
  5. DiTella, Rafael & MacCulloch, Robert & Oswald, Andrew J., 2001. "Preferences over inflation and unemployment: Evidence from surveys of happiness," ZEI Working Papers B 03-2001, ZEI - Center for European Integration Studies, University of Bonn.
  6. Vinod Mishra & Ingrid Nielsen & Russell Smyth, 2010. "Relative Income, Temporary Life Shocks and Subjective Wellbeing in the Long-run," Monash Economics Working Papers 51-10, Monash University, Department of Economics.
  7. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
  8. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April.
  9. Di Tella, Rafael & MacCulloch, Robert, 2008. "Gross national happiness as an answer to the Easterlin Paradox?," Journal of Development Economics, Elsevier, vol. 86(1), pages 22-42, April.
  10. Easterlin, Richard A., 2009. "Lost in transition: Life satisfaction on the road to capitalism," Journal of Economic Behavior & Organization, Elsevier, vol. 71(2), pages 130-145, August.
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