Macroeconomic Performance and Institutional Change: Evidence from Subjective Well-Being Data

Heinz Welsch and Jan Kühling ()

Journal of Applied Economics, 2016, vol. 19, issue 2, 193-217

Abstract: The relationship between macroeconomic performance and institutional change is explored in member countries of the Organization for Economic Cooperation and Development (OECD). We first assess the effects of national income growth, unemployment and inflation on subjective well-being (SWB) in thirty OECD countries, and employ the relationships found to construct an index of macroeconomic performance in terms of SWB. Applying the index to the period 1990–2009, we find that macroeconomic performance has improved in OECD overall and in the majority of countries, and that there has been a convergence of performance within the OECD. We then present evidence that OECD countries' performance, as measured, is positively related to institutional change towards more trade openness and better institutional quality. We argue that both increased openness and improved institutional quality are correlates of economic and political integration and conclude that international integration has enhanced SWB by improving OECD countries' national macroeconomic performance.

Date: 2016
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DOI: 10.1016/S1514-0326(16)30008-3

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