Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 579: Relative Standing and Life-Satisfaction: Does Unobserved Heterogeneity Matter?
Yonas Alem ()
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Yonas Alem: Department of Economics, School of Business, Economics and Law, Göteborg University, Postal: P.O. Box 640, SE 40530 Gothenburg, Sweden
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.
Keywords: life satisfaction; urban Ethiopia; relative standing; fixed effects
20 pages, December 10, 2013
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