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Life-Satisfaction in Urban Ethiopia: The Role of Relative Poverty and Unobserved Heterogeneity

Yonas Alem

Discussion Papers from Resources For the Future

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 impactof 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: O12 I30 I31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-dev, nep-ger, nep-hap and nep-ure
Date: 2014-03-05
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