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Relative Standing and Life-Satisfaction: Does Unobserved Heterogeneity Matter?

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  • Alem, Yonas

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

Unlike most studies of subjective well-being in developing countries, we use a fixed effects regression on three rounds of rich panel data to investigate the impact of relative standing on life satisfaction of respondents in urban Ethiopia. We find a consistently large negative impact of relative standing - both relative to others and to oneself over time - on subjective well-being. However, controlling for unobserved heterogeneity through a fixed effects model reduces the impact of the relative standing variables on subjective well-being by up to 24 percent and reduces the impact of economic status by about 40 percent. Our findings highlight the need to be cautious in interpreting parameter estimates from subjective well-being regressions based on cross-sectional data, as the impact of variables may not be disentangled from that of unobserved heterogeneity.

Suggested Citation

  • Alem, Yonas, 2013. "Relative Standing and Life-Satisfaction: Does Unobserved Heterogeneity Matter?," Working Papers in Economics 579, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0579
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    File URL: http://hdl.handle.net/2077/34642
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    References listed on IDEAS

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    2. Ravallion, Martin & Lokshin, Michael, 2010. "Who cares about relative deprivation?," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 171-185, February.
    3. Yonas Alem & Gunnar Köhlin, 2014. "The Impact of Food Price Inflation on Subjective Well-being: Evidence From Urban Ethiopia," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, pages 853-868.
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    Cited by:

    1. Haile, Mekbib G. & Algieri, Bemardina & Kalkuhl, Matthias & Gebreselassie, Samuel, 2016. "Analysis of Price Shock Transmission: Case of the Wheat-Bread Market Value Chain in Ethiopia," 2016 AAAE Fifth International Conference, September 23-26, 2016, Addis Ababa, Ethiopia 246312, African Association of Agricultural Economists (AAAE).
    2. Daniel Ayalew Mekonnen & Daniel Ayalew Mekonnen & Nicolas Gerber & Nicolas Gerber, 2016. "Aspirations and income, food security and subjective well-being in rural Ethiopia," FOODSECURE Working papers 51, LEI Wageningen UR.

    More about this item

    Keywords

    life satisfaction; urban Ethiopia; relative standing; fixed effects;

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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