Accounting for Unobserved Country Heterogeneity in Happiness Research: Country Fixed Effects versus Region Fixed Effects

Abstract

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 supra-national region dummies (by geography or language) in a country-random effects model appears to be a sufficient substitution for omitted country fixed effects.Happiness; life satisfaction; subjective well-being; quality of life; institutions; democracy; rule of law; political constraints; policy implications; panel econometrics