What can’t money buy? Wellbeing and GDP since 1820

This paper provides a overview of developments in wellbeing in the world since 1820 using seven indicators. To this end, a composite indicator is constructed using a latent variable model able to deal well with missing data and measurement error issues. Overall, this composite indicator gives an optimistic, if divergent picture of developments in wellbeing. Wellbeing increased substantially in most regions of the world since at least the early twentieth century. At the same time, the divergence of Western Europe and its offshoots with the rest of the world in the nineteenth century is stronger. Convergence in the past decades, however, is also more pronounced. In more recent decades, low-income countries have made more progress in the composite indicator than in per capita GDP. The composite indicator also shows a segmented relation with income, suggesting diminishing returns to income. Improvements in wellbeing indicators over time exogenous to GDP and country-specific characteristics were an important part of this.