Accounting for Unobserved Country Heterogeneity in Happiness Research: Country Fixed Effects Versus Region Fixed Effects
31 Pages Posted: 1 Jun 2010
Date Written: April 31, 2010
Many empirical studies are ambiguous about whether good formal institutions are conducive to subjective well-being or not. Possibly, this ambiguity is caused by cross-section models that do not account for unobserved cultural and institutional effects. Using the World Value Survey 1980-2005, this paper supports a positive relation in a country panel framework that accounts for unobserved, time-invariant country heterogeneity. This study also shows that using supranational region dummies (by geography or language) in a country-random effects model appears to be a sufficient substitution for omitted country fixed effects.
Keywords: Happiness, Life Satisfaction, Well-Being, Quality of Life, Institutions, Democracy, Rule of Law, Political Constraints, Policy Implications, Panel Econometrics
JEL Classification: I31, H10, H40, C33
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