The Ladder of Happiness Through Macroeconomic Fundamentals or Social Expenditure: A BRICS Perspective

 Summary:

In current geopolitics, the BRICS nations can set new standards for future economic development. This article explores how these countries should progress in their future development paths. Keeping happiness as an objective, this article suggests that social expenditures are much more critical than macroeconomic fundamentals.  

Figure 1: The Ladder of Happiness of BRICS nations from 2014 to 2023

Source: World Bank Open Data, The size of the bubble represents the level of the Cantril Ladder Index of that country in that year

Introduction

The Cantril Ladder, a simple yet effective tool for gauging subjective well-being, poses a straightforward question: "Imagine a ladder with the best possible life at the top step (10) and the worst possible life at the bottom step (0). On which step do you feel you personally stand at this time?"[1] By quantifying subjective experiences, this scale offers valuable insights into individual life satisfaction. While individual well-being is a complex interplay of personal circumstances and psychological factors, macro-level variables can significantly influence happiness. This study delves into the relationship between these broader economic factors and Cantril Ladder scores, focusing specifically on the BRICS nations as they represent a significant portion of the global economy. Understanding the factors that influence the happiness of their citizens is crucial for policymakers and researchers alike.

Our panel data analysis indicates that three key variables—GDP per capita, expenditure on health and education, and the unemployment rate—significantly influence Cantril Ladder scores within the BRICS nations. The following sections delve into the specific impact of each variable. 

Panel data analysis of BRICS countries

Table 1: Random effect regression result of the Cantril Ladder index on macroeconomic and social expenditure variables

	Model-1	Model-2
CPI	-.002 (0.003)	0.0032 (.002)
Log of GDP Per Capita	0.471** (0.189)	1.262*** (0.09)
Unemployment	-0.058*** (0.01)	-0.058*** (0.006)
Health Expenditure (% of GDP)	0.332*** (0.05)
Expenditure on Education (% of GDP)		0.629*** (0.057)
Intercept	-0.083 (1.79)	-8.61*** 0.996

***,**,* represent 1%, 5%, and 10% L.S. respectively, S.E. in the parentheses

As an indicator of wealth distribution, GDP per capita directly and significantly impacts citizens' happiness. As a country's average income rises, so does the general well-being of its people. Our analysis reveals that a 1% boost in GDP per capita leads to a statistically significant increase in the Cantril Ladder score. This suggests that income distribution is important to a country's happiness level.
However, the relationship between income and happiness is not always linear. Studies have shown that while increased income can boost happiness to a certain point, additional wealth may not significantly increase well-being beyond a certain threshold.
Unemployment, a scourge of modern economies, can cast a long shadow over individual well-being. Job loss can lead to a host of negative consequences, including financial insecurity, increased stress, and a diminished sense of purpose. These factors can significantly impact people's perceptions of their lives and, consequently, their Cantril Ladder scores. Our analysis reveals that a 1% increase in the unemployment rate is associated with a statistically significant 0.058 decrease in the Cantril Ladder score. This finding underscores the detrimental impact of unemployment on subjective well-being. Moreover, high unemployment rates can have broader societal implications, such as increased social unrest and political instability, further eroding people's sense of security and overall well-being.
Government investment in education and healthcare is a cornerstone of societal progress. By prioritizing these sectors, nations can foster long-term economic growth, enhance social development, and improve the overall well-being of their citizens. Our research shows that investing in education and healthcare can significantly boost people's happiness. A 1% increase in health expenditure is linked to a 0.33 increase in the happiness index, while a 1% increase in education expenditure is associated with a 0.629 boost in happiness.

The BRICS: A comparative analysis-  China's sustained economic growth and significant investments in education have contributed to a relatively stable Cantril Ladder score (Figure-1). In contrast, Brazil and Russia have experienced fluctuations in their scores, influenced by economic volatility and political uncertainty. India, despite rapid economic growth, faces challenges related to unemployment and inequality, which can impact its citizens' well-being.
In conclusion, while macroeconomic variables play a significant role in shaping individuals' perceptions of their lives, a holistic approach is necessary to understand the complex interplay between economic conditions and subjective well-being. Policymakers should consider not only economic growth but also social and environmental factors to promote sustainable and equitable development.

R code for the plot: Packages used- dplyr, ggplot2, gganimate

p <- ggplot(data, aes(x = GDPPerCapita, y = HappinessIndex, size = HappinessIndex, color = Country)) +

  geom_point(alpha = 0.7) +

  geom_text(aes(label = Country), vjust = 1.5, hjust = 1.5, size = 3) +

  scale_size(range = c(2, 12)) +

  theme_minimal() +

  labs(

    title = 'BRICS Countries: Happiness Index vs GDP Per Capita',

    x = 'GDP Per Capita',

    y = 'Happiness Index',

    size = 'Happiness Index'

  ) +

  theme(

    plot.title = element_text(hjust = 0.5)

  )

animated_plot <- p + transition_time(Year) +

  labs(subtitle = 'Year: {frame_time}')

References:

[1] OECD Guidelines on Measuring Subjective Well-being

By

Tisha Virmani

M.A. Economics (2024-26), Department of Economics, SBSS, MRIIRS, Faridabad