Reverse the Question: Does Happiness Raise Economic Output? : Evidence from the European Value Survey, 1981–2009

Abstract: So far, numerous studies have been devoted to investigate the relationship between happiness and income by asking the question whether economic growth has a positive impact on happiness. However, the reversed relationship from happiness to economic output has received much less attention in the literature. This paper attempts to investigate such relationship by using data from the European Value Survey that contains subjective reported well-being (happiness, or life satisfaction) values across 47 European countries from 1981 to 2009. Gender imbalance is used as an instrument for happiness in order to disentangle the causal effect of happiness on income. Based on a derived Solow model, where labor efficiency is assumed to be positively affected by worker happiness, regression analyses suggest that the sense of happiness does have a positive and highly significant impact on GDP per worker. Robustness tests further show that the result also holds for life satisfaction. According to the results, the author recommends governments to use well-being oriented index, along with GDP to measure the overall economy.