“Happiness and Development: The Effect of Mental Well-being on Economic Growth” by Yi Lu
The University of Hong Kong
University of Colorado at Boulder
This paper examines the impact of overall happiness of citizens on economic growth across countries. We first document a robust positive correlation between overall happiness level and economic growth across countries, and then exploit the variation in sex imbalance, a factor that impedes normal mating and thus causes unhappiness, to instrument happiness and identify its causal impact on economic growth. Our results show that happiness has a positive causal effect on economic growth. Other things being equal, a one-standard-deviation increase in happiness raises growth rate by approximately two percentage points. In addition, we find that life expectancy and investment ratio are two possible channels through which happiness works.