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Relative Standing and Life-Satisfaction: Does Unobserved Heterogeneity Matter?

Yonas Alem

No 579, Working Papers in Economics from University of Gothenburg, Department of Economics

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 (search for similar items in EconPapers)
JEL-codes: I30 I31 O12 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-12-10
New Economics Papers: this item is included in nep-dev, nep-hap and nep-ure
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