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The Role of Social Ties in Explaining Heterogeneity in the Association Between Economic Growth and Subjective Well-Being

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Abstract

Whether economic growth improves subjective well-being has been under debate. Studies that find such an association also document heterogeneity between countries in the magnitude of the relationship. We test a theoretical model in which economic growth enhances subjective well-being only when a large share of the population derives their subjective well-being from relational goods with positive externalities instead of positional goods with negative externalities. The choice between relational and positional goods is determined by individuals’ relational abilities and expectations which we operationalize as attachment security. We specifically test whether economic growth improves subjective well-being more in those countries where the average attachment security is higher. We find support for the hypothesis in the Eurobarometer data but less support in the World Values Survey data.

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Notes

  1. We use “subjective well-being” as a concept which includes both “happiness” and “life satisfaction”. Happiness and life satisfaction are somewhat distinct concepts and empirical counterparts of SWB and can have different correlates (Graham et al. 2010). We treat them separately in our empirical analysis although they are mostly not distinguished in the theoretical literature on the relationship between economic growth and SWB.

  2. Another possible explanation is adaptation to the consumption level over time. There is empirical evidence suggesting that relative income concerns have a larger effect (Layard et al. 2010). Increases in inequality associated with economic growth can also result in stagnant SWB if inequality decreases SWB. Country differences in the effects of adaptation or in inequality could therefore also explain the heterogeneity in the GDP–SWB association.

  3. The model implicitly assumes that market goods can affect well-being only through relational goods or through consumption which has negative externalities via positional comparisons. There is no effect of the higher quantity or quality of market goods such as tastier meals, for example, outside these channels. If deviations from this assumption are important, and product quality and quantity have significant positive effects on well-being, we should not observe a lack of association between GDP and SWB. If the deviation is significant only below a certain level of consumption, this prediction should accordingly be valid only among countries below that level (Akay et al. 2012).

  4. A problem in using psychological survey measures in cross-country analyses is that people tend to evaluate themselves in comparison to the averages of the country they live in (Heine et al. 2008). This makes it more difficult to find statistically significant relationships across countries.

  5. See Hovi and Laamanen (2015) for a more elaborate discussion on different types of models of GDP and SWB and their interpretations.

  6. The inclusion of the attachment main effect in the regression equations leads to very high multicollinearity. Mean centering of the variables has been proposed as a way of alleviating multicollinearity (Aiken and West 1991). We tried this as a robustness check, and the results remained qualitatively intact.

  7. We checked the robustness of the estimates by excluding Belgium from the sample. In the Eurobarometer data, the prediction of life satisfaction by the interaction of attachment and log GDP was no longer statistically significant, whereas the prediction of happiness by the interaction became, in general, more statistically significant. The estimates of the interaction term were not affected by the exclusion of Belgium in the WVS data.

  8. Excluding Belgium from the sample led the estimates of log GDP to be statistically significant in the lowest quartile when predicting life satisfaction in the Eurobarometer data in levels with and without the country fixed effects. In the WVS data, the exclusion of Belgium decreased the statistical significance of differences in log GDP predicting life satisfaction in the lowest quartile. The estimate of log GDP predicting happiness in long first differences became almost statistically significant (p < .10).

  9. The results are available from the authors.

  10. There are earlier empirical studies that have examined various measures of SWB in panel data settings (e.g. Böckerman and Ilmakunnas 2009).

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Acknowledgments

This research was supported by the Academy of Finland (Project No. 252369). We are grateful for helpful discussions and comments from Markus Haavio, Juha Itkonen, Jukka Pirttilä, Maurizio Pugno and participants at the Annual Congress of the International Institute of Public Finance (Lugano) as well as from two anonymous reviewers.

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Authors and Affiliations

  1. Turku School of Economics, Turku, Finland

    Petri Böckerman

  2. Labour Institute for Economic Research, Helsinki, Finland

    Petri Böckerman

  3. IZA, Bonn, Germany

    Petri Böckerman

  4. University of Tampere, Tampere, Finland

    Jani-Petri Laamanen & Esa Palosaari

  5. Aalto University, Helsinki, Finland

    Esa Palosaari

  6. HECER, Helsinki, Finland

    Esa Palosaari

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  1. Petri Böckerman
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  3. Esa Palosaari
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Correspondence to Petri Böckerman.

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Böckerman, P., Laamanen, JP. & Palosaari, E. The Role of Social Ties in Explaining Heterogeneity in the Association Between Economic Growth and Subjective Well-Being. J Happiness Stud 17, 2457–2479 (2016). https://doi.org/10.1007/s10902-015-9702-0

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