Happiness in Solow Growth Model

Abstract

Using annual data from 1961 to 2005 growth rate of gross domestic product
at the constant prices of year 2000 is taken in the dependent variable and
growth rates of employment level, gross fixed capital formation and lag
dependent variable are all the explanatory variables, we obtained total
factor productivity by using Cobb Douglas Model. The corresponding time
period’s data of three happiness indices – life satisfaction, ecological
footprint and life expectancy is taken to determine the effect of happiness
indices on total factor productivity. Negative impact of ecological footprint
index on TFP is found in Canada, Japan, Norway, Spain, and UK, but is
found significant in the cases of Canada, Norway, Spain and UK. Life
expectancy is found to be significantly explaining TFP in Netherlands,
Norway, Spain, UK and USA. As far as the subjective index of happiness –
Life Satisfaction – is concerned the slope coefficient is insignificant in all the
cases except the USA. Estimates from pooled regression show that growth
rates of ecological footprint index and life expectancy both are significantly
explaining TFP, but life satisfaction index is found to be insignificant.
Endorsing Loria’s viewpoint there is not only a need to check national
income accounts but there is also a need to develop happier societies.
Enhancing happiness – the intangible capital – could be helpful in explaining
total factor productivity in the neoclassical growth model.