The Rich, The Poor and The Satisfied: An Econometric Approach to assess Determinants of Individual Well-Being and Robustness of GDP as a measure of Aggregate Welfare

Bianca Ambrosini & Roberto Zanaldi

Student thesis: Master thesis

Abstract

Following the extensive literature showing that GDP lacks in incorporating several aspects of human life that influence individual well-being and thus the aggregate country welfare, this research contributes specifically to enrich the studies based on a subjective approach. The analysis starts by presenting a latent regression model in which individuals are assumed to derive their well-being, represented by life satisfaction, from a set of personal and country variables. By means of the integrated WVS-EVS, a multi-temporal and worldwide dataset with more than 300,000 observations of subjective measure of well-being, this research sheds light on the relations between determinants of well-being and life satisfaction. These relations are estimated through an ordered probit model. There are two main findings of the research: first, consumption, wealth, health, environment, inequality, leisure time, country growth, education and unemployment contribute to shape the welfare differently according to macroareas; second, when predicted values of the ordered probit are compared with GDP, it is proven that GDP is not a robust measure to rank countries according to individuals’ subjective well-being. This research ends with proposing an innovative method to rank countries according to the probability of their citizens being satisfied with their life.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2011
Number of pages137