Publication Date


Document Type


First Advisor

Ryu, Duchwan

Degree Name

M.S. (Master of Science)

Legacy Department

Department of Statistics and Actuarial Science


The thesis investigates the most relevant economic and institutional determinants of happiness in some 93 countries worldwide, covering the period 2006-2019. We employ the Bayesian Model Averaging (BMA) fixed effect model (country demeaned and time demeaned) using a working panel data set with 651 observations. Our initial goal is to address the problem of model uncertainty in panel data models of happiness, aiming at selecting a set variables that are likely to be included in as "true" model of happiness. In addition, we aim to investigate the causal relationship running from selected economic and institutional variable to index of happiness. The descriptive analysis confirms the Easterlin paradox, since the relationship between income (GDP) and happiness is described by a concave-like curvature. The BMA results reveal that unemployment, inflation, GDP, education and health expenditures are the most robust economic determinants of happiness. The most relevant institutional determinants of happiness are government integrity, economic freedom and property rights. Our BMA findings also confirm a nonlinear relationship between several independent variables and happiness, though the results are quite sensitive to different model specifications. These results indicate that governments are supposed to improve both overall economic ambient and institutional setting to increase personal life satisfaction of their citizens.


69 pages




Northern Illinois University

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