Economic freedom and happiness.

Gropper, Daniel M. ; Lawson, Robert A. ; Thorne, Jere T., Jr. 等

That liberty is necessary for greater happiness and a better life is a notion deeply rooted in the American sensibility. But is there a link between greater freedom and greater happiness across countries? In this article we explore this question by examining the empirical relationship between liberty, as measured by economic freedom, and happiness across more than 100 countries.

There is a now a large literature on human happiness and its measurement. There is even a journal fully dedicated to the study of happiness. Kahneman, Diener, and Schwartz (1999) offer discussions of the many interesting theoretical and methodological issues involved in studying happiness. Kahneman et al. (2004) and Kahneman and Krueger (2006) discuss the current attempts to measure happiness at the individual and societal level. Frey and Stutzer (2000) and Wilkinson (2007) offer interesting reviews and criticisms of the happiness literature in economics. Norberg (2010) outlines the motivations behind the development of some of the happiness measures and potential pitfalls in their use.

There is also a large literature on the concept and measurement of economic freedom (Gwartney and Lawson 2003). The Economic Freedom of the World (EFW) index (Gwartney and Lawson 2008) has spawned hundreds of scholarly articles on the impact of economic freedom on economic growth and other indicators of human welfare (see, for example, Hall and Lawson 2011, de Haan et al. 2006, Lawson and Clark 2010, Seully 2002, Lawson and Roychoudhury 2010, Stroup 2008).

Early research tended to find that economic freedom was positively associated with happiness (Veenhoven 2000, Ovaska and Takashima 2006). More recent work, however, has been mixed. Bjornskov, Dreher, and Fischer (2010) argue that the association between measures of institutional quality (like freedom) and happiness are different between rich and poor countries. Ott (2010a, 2010b) contends that the relationship between government size (a component of economic freedom) mad happiness is contingent on the quality of the governance. Venne (2009) provides a theoretical argument and empirical evidence that "freedom of choice" is a strong factor in determining happiness.

Data, Model, and Results

While happiness research has advanced a great deal in the last decade, shortcomings in measurement remain. As Norberg (2010) notes, measures of happiness are less scientific and more subjective than measures of output, but some analysts still favor them in place of GDP to guide government policy. He points out that Bhutan used a Gross National Happiness index, created by the Centre for Bhutan Studies, as a way to excuse the government's failure to improve poor living standards, and even to justify repression of minorities in efforts to create a national identity.

Regardless of the motivations behind the development of happiness measures, we think it is worthwhile to examine the relationship between happiness and economic freedom, bearing in mind the limitations of the measures. We use three measures of happiness in our analysis. The first measure was originally gathered from Veenhoven's World Database of Happiness and was based primarily on the results from the World Values Survey (WVS); however, results from the Latinobarometer and Afrobarometer were also taken into consideration. The average reported life satisfaction (happiness) score for this sample was 6.16 (out of a possible 10), with a range of 3.0 (Burundi) to 8.19 (Denmark).

The second measure of subjective well being comes from the updated Happy Planet Index 2.0. Released in July 2009, the data from this study are almost entirely derived from an average of a comprehensive multinational survey performed by the Gallup Poll and the two most recent waves of the World Values Survey. The Gallup World Poll posed the same, commonly used question as in the World Values Survey: "'All things considered, how satisfied are you with your life as a whole these days?" Responses were ranked on a scale of zero to ten. Zero was file least satisfied and ten was file most. The Gallup poll and WVS average produced 112 observations out of a total of 143 for the entire study. The remaining observations are unmatched countries from each study, respectively. The average score for this sample was 6.12, with a range of 2.4 (Tanzania) to 8.5 (Costa Rica). While any survey questions about how satisfied one is with life are subject to criticisms about reliability for any given person across different times, and particularly across different people in widely varying circumstances, they are nonetheless interesting to examine, and at this time, they represent the best data available.

The third measure of subjective well-being is simply a combination of subjective well-being and life expectancy at birth. This measure is created by dividing the responses to Gallup's life satisfaction survey by 10 and multiplying by the country's life expectancy. Referred to as "Happy Life Years," this measure serves to ensure that both subjective and objective elements of well-being are captured. It recognizes that a satisfying life is not ideal if it is very short, but also that a long life is not ideal if it is miserable. The average score for this sample was 43.62, with a range of 12.5 (Tanzania) to 66.7 (Costa Rica).

The economic freedom data for this study come from the EFW index (Gwartney and Lawson 2008). For over a decade, the EFW project has been devoted to measuring the degree of economic freedom for large numbers of countries. The EFW index uses personal choice (voluntary exchange), the freedom to enter and compete in markets, and protection of persons and property as core elements for evaluating a country's economic freedom. Each country is ranked on a scale of zero to ten. Ten is the highest degree of economic freedom and zero the lowest. Hong Kong scores the highest with a rating of 9.0 and the Democratic Republic of Congo is lowest at 3.8.

Table 1 reports the three happiness measures and the EFW index for all the countries included in our study. All data are for 2005. Table 2 presents detailed descriptions and sources for all the variables, and Table 3 provides summary statistics. Figure 1 illustrates the simple relationship between the EFW index and the Happy Life Years measure of happiness.

We use the following model to examine the relationship between measured happiness and freedom:

(1) [H.sub.j] = f([EF.sub.j], [GDPPC.sub.j], [EF.sub.j] x [GDPPC.sub.j])

where [H.sub.j] is the measured level of happiness for a country, [EF.sub.j] is the EFW index for the respective country, and [GDPPC.sub.j] represents GDP per capita. Including GDP per capita is justified because previous research has shown that happiness depends on the level of development (Easterlin 2001). We include an interaction term because the impact of economic freedom on happiness may be contingent on the level of development and vice versa.

Our specification is quite parsimonious and critics might easily suggest other variables that could matter for national happiness. However, most of the potential control variables correlate highly with either economic freedom, GDP per capita, or both. For example, inflation may matter, but that is a component part of the economic freedom index. Unemployment may matter, but as Feldman (2007) shows, countries with less economic freedom exhibit greater unemployment. Life expectancy, democracy, and many other indicators are also highly correlated with both economic freedom and GDP per capita. Thus, we argue that the included variables of economic freedom and GDP per capita are likely to capture most of the variation associated with any omitted variables. Finally, there are often major tradeoffs with data quality and sample size when including more control variables. In any case, we are not necessarily arguing that there is a direct causal relationship between economic freedom, GDP per capita, and the happiness variables. Nevertheless, the results provide some insights about the contrast between the nature and characteristics of rich market-oriented economies and those dominated by government regulation and planning.

Table 4 presents the regression results. Regressions (1), (3), and (5) omit the interaction term between economic freedom and GDP per capita. Regardless of the happiness metric used or the specification, the results are consistent in showing a positive association between economic freedom and GDP per capita and happiness. According to regression (3) for example, we find that a one standard deviation increase in the economic freedom index corresponds to a one-third standard deviation improvement in the happiness score. * A similar magnitude increase in GDP per capita yields an increase in happiness of about 0.4 of a standard deviation. Regressions (2), (4), and (5) include the [EF.sub.j] x [GDPPC.sub.j] interaction term. The negative sign on the interaction coefficient indicates that the impact of the one variable diminishes as the other variable increases.

Table 5, using results from regression (4) in Table 4, shows the impact of a one standard deviation increase in economic freedom on happiness at different levels of GDP per capita, as well as the impact of a one standard deviation increase in GDP per capita on happiness at different levels of economic freedom. For poorer countries, additional economic freedom appears to improve happiness, but for very rich countries additional economic freedom actually correlates with less happiness. These results appear to be consistent with those of Bjornskov, Dreher, and Fischer (2010). Similarly, higher GDP per capita has a more beneficial impact on countries with lower economic freedom, and as economic freedom increases, the impact of GDP per capita on happiness diminishes, though it remains positive.

Of course, to the extent economic freedom is a causal factor in contributing to GDP per capita (Hanke and Waters 1997; Gwartney, Holcombe, and Lawson 2004, 2006), these results understate the true impact of economic freedom. The likely endogeneity of GDP per capita is not an issue that we will address in detail here. If increased economic freedom causes GDP per capita to increase, as it almost certainly does, then additional economic freedom will have a direct impact on happiness, up to a certain point, and an indirect effect operating through increased GDP per capita.

Statistically speaking, economic freedom and GDP per capita go hand in hand. The simple correlation coefficient between the EFW index and GDP per capita is 70.1 percent. See Figure 2 for a scatter-plot and regression line between the two variables.

From Table 5, we see that a one standard deviation increase in the EFW index corresponds to a 0.24 unit increase in the happiness index (when evaluated at the mean level of GDP per capita).

However, for every one standardized unit increase in the EFW index, the regression line in Figure 2 shows an approximately $11,000 increase in GDP per capita. By our calculations, this could generate an increase in happiness of an additional 0.60 units. Thus, the combined effect of a standardized unit increase in the EFW index on the happiness index is perhaps as large as 0.84 when one includes the indirect channel through GDP per capita.

To further illustrate the effects of greater freedom on happiness, we examine a couple of specific cases. The final column in Table 5 shows that the effect of a simultaneous increase in both economic freedom and GDP per capita on happiness appears to be positive throughout the relevant range of data.

Our results stand in contrast to some earlier authors, such as Layard (2003: 17) who stated that "once a country has over $15,000 per head, its level of happiness appears to be independent of its income per head." In a similar conclusion, Frey and Stutzer (2002: 416) note, "Income provides happiness at low levels of development but once a threshold (around $10,000) is reached, the average income level in a country has little effect on average subjective well-being."

[FIGURE 2 OMITTED]

Consider Sweden, which is both a high-income country (GDP per capita of $38,500) and, notwithstanding its welfare state reputation, a reasonably market-oriented economy (EFW rating of 7.4). If Sweden were to increase its economic freedom to the level of the United States (EFW rating of 8.0), the projected impact on happiness in Sweden would be slightly negative. However, if the increase in economic freedom in Sweden also yielded a GDP per capita akin to that of the United States ($47,000), then the net impact on Swedish happiness would be slightly positive.

What is more striking, and perhaps more hopeful, is the impact of increasing freedom on less free and poorer nations. If Mexico (GDP per capita of $14,200 and EFW rating of 7.0) were to simultaneously increase economic freedom and GDP per capita to that of the United States, the impact would be 1.9 units on the happiness (Gallup) scale--more than a full standard deviation increase in happiness.

Alternatively using the coefficient estimates from regression (6) in Table 4, we find that if Sweden and Mexico each achieved the same levels of economic freedom and GDP per capita as the United States, the predicted improvement in Happy Life Years would be 1.2 and 7.2, respectively.

Conclusion

Using the best available data for a sample of well over 100 countries, this article finds a positive relationship between national levels of happiness and economic freedom. GDP per capita also exerts a strong positive influence on happiness. The statistical impact of both economic freedom and GDP per capita appears to diminish as the other increases, but the combined effect of simultaneously increasing both economic freedom and GDP per capita, particularly for poorer and less free nations, is positive. Around the world, freer people generally are wealthier, live longer, and are happier.

References

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* A one standard deviation improvement in the economic freedom rating is about one unit on the EFW index scale, roughly the difference between the United States (8.0) and Mexico (7.0). A one-third standard deviation in the happiness score is nearly a half point on that scale, roughly the difference between the United States (7.9) and the United Kingdom (7.4).

Daniel M. Gropper is David and Meredith Luck Professor, Department of Finance, College of Business, Auburn University. Robert A. Lawson is Jerome M. Fullinwider Chair in Economic Freedom, O'Neil Center for Global Markets and Freedom, Cox School of Business, Southern Methodist University. Jere T. Thorne Jr. is with the Home Depot, and is a graduate of Auburn University.

TABLE 1
HAPPINESS, ECONOMIC FREEDOM, AND GDP PER CAPITA, BY COUNTRY, 2005

                                            Happiness:   Economic
                  Happiness:   Happiness:   Happy Life   Freedom
Country              WVS         Gallup       Years       Index

Albania                           5.50        41.70        5.9
Algeria              5.19         5.60        40.10        5.4
Argentina            6.81         7.10        53.40        5.3
Australia            7.29         7.90        63.70        7.9
Austria              7.80         7.80        61.90        7.7
Bahamas              7.71          --           --         7.0
Bahrain              7.20          --           --         7.1
Bangladesh           5.70         5.30        33.10        5.8
Barbados             7.29          --           --         5.8
Belgium              7.29         7.60        60.00        7.2
Belize               6.90         6.60        50.20        7.0
Benin                5.40         3.00        16.70        5.8
Bolivia              5.49         6.50        42.10        6.6
Botswana             5.40         4.70        22.60        6.9
Brazil               6.30         7.60        54.30        5.9
Bulgaria             4.29         5.50        39.80        6.6
Burundi              3.00         2.90        14.30        5.0
Cameroon             5.10         3.90        19.60        5.6
Canada               7.59         8.00        64.00        8.0
Central Afr.         4.89         4.00        17.60        5.1
  Rep.
Chad                 4.50         5.40        27.00        5.3
Chile                6.51         6.30        49.20        7.7
China                6.30         6.70        48.60        5.9
Colombia             7.20         7.30        53.00        5.6
Congo, Dem. R.       3.30         3.90        18.00        3.8
Congo, Rep. of       5.70         3.60        19.70        4.5
Costa Rica           7.50         8.50        66.70          7
Croatia              5.91         6.40        48.30        6.5
Cyprus               6.90         7.20        56.60        7.5
Czech Rep.           6.39         6.90        52.00        7.0
Denmark              8.19         8.10        62.90        7.7
Dominican Rep.       6.99         7.60        54.20        6.3
Ecuador              5.61         6.40        48.00        5.6
Egypt                4.80         6.70        47.20        6.8
El Salvador          6.60         6.70        47.60        7.5
Estonia              5.10         5.60        40.10        7.8
Fiji                 6.69          --           --         6.3
Finland              7.71         8.00        63.30        7.8
France               6.60         7.10        56.60        6.9
Gabon                6.21          --           --         5.6
Germany              7.20         7.20        56.80        7.7
Ghana                6.21         4.70        28.00        6.4
Greece               6.30         6.80        54.00        6.8
Guatemala            6.99         7.40        51.80        7.1
Guinea-Bissau        5.40          --           --         5.3
Guyana               7.20         6.50        42.60        6.4
Haiti                5.49         5.20        30.80        5.8
Honduras             7.20         7.00        48.70        6.5
Hong Kong            6.60         7.20        58.60        9.0
Hungary              5.70         5.70        41.80        7.6
Iceland              7.80         7.80        63.90        7.8
India                5.40         5.50        35.10        6.7
Indonesia            6.60         5.70        39.50        6.4
Iran                 6.00         5.60        39.50        6.5
Ireland              7.59         8.10        63.80        7.9
Israel               6.69         7.10        56.80        7.4
Italy                6.90         6.90        55.70        6.9
Jamaica              6.99         6.70        48.50        7.0
Japan                6.21         6.80        55.60        7.4
Jordan               5.10         6.00        43.10        6.9
Kenya                5.61         3.70        19.10        6.9
Kuwait               7.20         6.70        51.60        7.4
Latvia               4.71         5.40        39.10       7.30
Lithuania            4.71         5.80        41.80        7.2
Luxembourg           7.59         7.70        60.10        7.7
Madagascar           5.79         3.70        21.80        5.8
Malawi               4.59         4.40        20.60        5.5
Malaysia             7.41         6.60        48.60        6.8
Mali                 5.31         3.80        20.00        5.5
Malta                7.50         7.10        56.00        7.1
Mauritius            6.51          --           --         7.6
Mexico               6.90         7.70        58.30        7.0
Morocco              5.61         5.60        39.70        6.0
Namibia              6.51         4.50        23.20        6.4
Nepal                5.49         5.30        33.30        5.0
Netherlands          7.50         7.70        61.10        7.8
New Zealand          7.41         7.80        62.30        8.3
Nicaragua            6.30         7.10        51.00        6.3
Niger                4.50         3.80        21.00        5.3
Nigeria              5.49         4.80        22.20        5.7
Norway               7.41         8.10        64.60        7.4
Oman                 7.29          --           --         7.9
Pakistan             4.29         5.60        36.20        5.8
Panama               7.20         7.80        58.50        7.2
Pap. New Guinea      6.30          --           --         6.3
Paraguay             6.51         6.90        49.00        6.3
Peru                 5.61         5.90        41.70        7.1
Philippines          6.39         5.50        38.90        6.5
Poland               5.91         6.50        48.70        6.8
Portugal             6.09         5.90        45.50       7.30
Romania              5.19         5.90        42.60        6.3
Russia               4.29         5.90        38.10        5.5
Rwanda               4.41         4.20        19.10        5.1
Senegal              5.61         4.50        27.90        6.1
Sierra Leone         5.01         3.60        14.80        5.5
Singapore            6.90         7.10        56.50        8.6
Slovak Rep           5.40         6.10        45.10       7.20
Slovenia             6.60         7.00        54.20        6.0
South Africa         5.70         5.00        25.20        6.7
South Korea          5.79         6.30        49.10       7.20
Spain                6.99         7.60        61.20        7.1
Sri Lanka            6.09         5.40        38.60        5.8
Sweden               7.71         7.90        63.20        7.4
Switzerland          8.19         7.70        62.60        8.2
Syria                5.10         5.90        43.40        5.4
Taiwan               6.60           -            -        7.20
Tanzania             5.49         2.40        12.50        6.4
Thailand             6.51         6.30        43.50        6.7
Togo                 4.89         2.60        15.20        5.0
Trinidad & Tob.      6.90         6.70        46.30        6.6
Tunisia              6.39         5.90        43.30        6.2
Turkey               5.31         5.50        39.40        6.2
Uganda               4.71         4.50        22.30        6.4
Ukraine              3.60         5.30        35.90        5.6
Unit. Arab Em.       4.59         7.20        56.20        7.5
United Kingdom       7.11         7.40        58.60        8.1
United States        7.41         7.90        61.20        8.0
Uruguay              6.30         6.80        51.20        6.7
Venezuela            7.41         6.90        50.40        4.6
Zambia               4.89         4.30        11.50        6.8

                                  GDP per
                   GDP per         Capita
                    Capita       x Economic
Country            ($1000x)       Freedom

Albania               6.00          35.40
Algeria               7.00          37.80
Argentina            14.20          75.26
Australia            38.10         300.99
Austria              39.20         301.84
Bahamas              28.60         200.20
Bahrain              37.20         264.12
Bangladesh            1.50           8.70
Barbados             19.30         111.94
Belgium              37.50         270.00
Belize                8.60          60.20
Benin                 1.50           8.70
Bolivia               4.50          29.70
Botswana             13.30          91.77
Brazil               10.10          59.59
Bulgaria             12.90          85.14
Burundi               0.40           2.00
Cameroon              2.30          12.88
Canada               39.30         314.40
Central Afr.          0.70           3.57
  Rep.
Chad                  1.60           8.48
Chile                14.90         114.73
China                 6.00          35.40
Colombia              8.90          49.84
Congo, Dem. R.        0.30           1.14
Congo, Rep. of        4.00          18.00
Costa Rica           11.60          84.68
Croatia              16.10         104.65
Cyprus               28.60         214.50
Czech Rep.           26.10         182.70
Denmark              37.40         287.98
Dominican Rep.        8.10          51.03
Ecuador               7.50          42.00
Egypt                 5.40          36.72
El Salvador           6.20          46.50
Estonia              21.20         165.36
Fiji                  3.90          24.57
Finland              37.20         290.16
France               32.70         225.63
Gabon                14.40          80.64
Germany              34.80         267.96
Ghana                 1.50           9.60
Greece               32.00         217.60
Guatemala             5.20          36.92
Guinea-Bissau         0.60           3.18
Guyana                3.90          24.96
Haiti                 1.30           7.54
Honduras              4.40          28.60
Hong Kong            43.80         394.20
Hungary              19.80         150.48
Iceland              39.90         311.22
India                 2.80          18.76
Indonesia             3.90          24.96
Iran                 12.80          83.20
Ireland              46.20         364.98
Israel               28.20         208.68
Italy                31.00         213.90
Jamaica               7.40          51.80
Japan                34.20         253.08
Jordan                5.00          34.50
Kenya                 1.60          11.04
Kuwait               57.40         424.76
Latvia               17.80         129.94
Lithuania            17.70         127.44
Luxembourg           81.10         624.47
Madagascar            1.00           5.80
Malawi                0.80           4.40
Malaysia             15.30         104.04
Mali                  1.20           6.60
Malta                24.20         171.82
Mauritius            12.10          91.96
Mexico               14.20          99.40
Morocco               4.00          24.00
Namibia               5.40          34.56
Nepal                 1.10           5.50
Netherlands          40.30         314.34
New Zealand          27.90         231.57
Nicaragua             2.90          18.27
Niger                 0.70           3.71
Nigeria               2.30          13.11
Norway               55.20         408.48
Oman                 20.20         159.58
Pakistan              2.60          15.08
Panama               11.60          83.52
Pap. New Guinea       2.20          13.86
Paraguay               420          26.46
Peru                  8.40          59.64
Philippines           3.30          21.45
Poland               17.30         117.64
Portugal             22.00         160.60
Romania              12.20          76.86
Russia               15.80          86.90
Rwanda                0.90           4.59
Senegal               1.60           9.76
Sierra Leone          0.70           3.85
Singapore            52.00         447.20
Slovak Rep           21.90         157.68
Slovenia             29.50         177.00
South Africa         10.00          67.00
South Korea          26.00         187.20
Spain                34.60         245.66
Sri Lanka             4.30          24.94
Sweden               38.50         284.90
Switzerland          40.90         335.38
Syria                 4.80          25.92
Taiwan               31.90         229.68
Tanzania              1.30           8.32
Thailand              8.50          56.95
Togo                  0.90           4.50
Trinidad & Tob.      18.60         122.76
Tunisia               7.90          48.98
Turkey               12.00          74.40
Uganda                1.10           7.04
Ukraine               6.90          38.64
Unit. Arab Em.       40.00         300.00
United Kingdom       36.60         296.46
United States        47.00         376.00
Uruguay              12.20          81.74
Venezuela            13.50          62.10
Zambia                1.50          10.20

TABLE 2
DEFINITIONS AND DATA SOURCES

             Definitions           Sources

Happiness:   Self-reported level   Abdallah et al. (2009)
WVS          of happiness
             compiled and          www.happyphunetiDdex.org/public-
             estimated by the New  data/files/happy-planet-
             Economics Foundation  index-2-0.pdf
             from multiple
             sources including
             the World Values
             Survey (WVS). Scores
             range from 0 (low)
             to 10 (high).

Happiness:   Self-reported level   New Economics Foundation (2006)
Gallup       of happiness
             gathered by Gallup    www.happyplanetindex.org/
             in 2006. All answers  public-data/files/happy-
             to the question:      planet-index-first-global.pdf
             "All things
             considered, how
             satisfied are you
             with your life as a
             whole these days?"
             Scores range from 0
             (low) to 10 (high).

Happiness:   A combination of a    Abdallah et al. (2009)
Happy Life   country's
Years        self-reported level   www.happyplanetindex.org/
             of happiness and its  public-data/files/happy-
             citizens' current     planet-index-2-O.pdf
             life expectancy at
             birth and is used
             here as a proxy for
             health. Since good
             health is often
             associated with
             happiness and
             subjective data
             regarding life
             satisfaction can
             often fall under
             some degree of
             scrutiny, the
             combination of the
             two accomplishes
             both the task of
             providing a little
             objectivity in the
             measurement and
             capturing some
             degree of long-term
             satisfaction with
             life.

Economic     Using a scale from 1  Gwartney and Lawson (2005)
Freedom of   to 10, the EFW index  www.freetheworld.com
the World    measures the degree
Index GDP    of economic freedom   World Bank, World Development
per Capita   in the nation. This   Indicators
             variable measures a
             nation's gross        http://databank.worldbank.
             domestic product per  org/ddp/home.do?
             capita. The variable  Step512&id54&CNO52
             is adjusted for
             purchasing power
             parity and is
             expressed in 1,000s
             of U.S. dollars.

TABLE 3
SUMMARY STATISTICS
                                                         Std.
Variable       N    Mean    Median   Minimum   Maximum   Dev.

Happiness:    119    6.17      6.3      3.00      8.19    1.10
  WVS
Happiness:    110    6.12      6.4      2.40      8.50    1.41
  Gallup
Happiness:    110   43.62    46.75     12.50     66.70   14.91
  Happy
  Life
  Years
Economic      120    6.65     6.65       3.8       9.0    0.96
  Freedom
  Index
GDP per       120   16.52    11.80      0.30     81.10   16.01
  Capita

TABLE 4
REGRESSION RESULTS

                  Happiness:   Happiness:    Happiness:   Happiness:
                     WVS           WVS         Gallup       Gallup
Variable             (1)           (2)          (3)           (4)

Intercept          3.191 ***     2.107 **     2.278 ***     0.248
                  (4.597)       (2.591)      (2.660)       (0.263)

Economic           0.389 ***     0.548 ***    0.488 ***     0.783 ***
Freedom           (3.361)       (4.187)      (3.408)       (5.145)

GDP per            0.024 ***     0.143 ***    0.037 ***     0.272 ***
Capita            (3.361)       (2.891)      (4.395)       (4.665)

GDP x EFW                       -0.016 **                  -0.032 ***
                               (-2.403)                   (-4.065)

N                    118           118          109           109
Adj. [R.sup.2]      .398          .422          .497         .561

                  Happiness:   Happiness:
                  Happy Life   Happy Life
                    Years         Years
Variable             (5)           (6)

Intercept          2.509       -18.830 **
                  (0.302)      (-2.089)

Economic           5.096 ***     8.200 ***
Freedom           (3.676)       (5.641)

GDP per            0.449 ***     2.921 ***
Capita            (5.461)       (5.235)

GDP x EFW                       -0.332 ***
                               (-4.472)

N                   109           109
Adj. [R.sup.2]      .577         .641

NOTES: t-statistics in parentheses; ** indicates significance at
the 5 percent level; *** indicates significance at the 1 percent
level.

TABLE 5
THE IMPACT OF ECONOMIC FREEDOM AND GDP PER CAPITA ON HAPPINESS

                           Impact of 1 Standard
                            Deviation Increase
                           in Economic Freedom
                Level of    on Happiness Score    Level of
                GDP per    at Different Levels    Economic
                 Capita     of GDP per Capita     Freedom

1 S.D. below      0.51              0.73            5.66
  Mean
Mean             16.52              0.24            6.62
1 S.D. above     32.53             -0.25            7.57
  Mean

                                           Impact of a
                                          Simultaneous
                                          Increase of 1
                Impact of 1 Standard   Standard Deviation
                 Deviation increase     in Both Economic
                in GDP per Capita at   Freedom and GDP per
                Different Levels of    Capita at Different
                  Economic Freedom     Levels of Economic
                                       Freedom and GDP per
                                             Capita

1 S.D. below            1.46                  2.19
  Mean
Mean                    0.97                  1.21
1 S.D. above            0.48                  0.23
  Mean

FIGURE 1
RELATIONSHIP BETWEEN ECONOMIC FREEDOM
AND HAPPINESS, BY QUARTILE

Economic Freedom Quartiles

3.8-5.8   29.4

5.9-6.7   40.4

6.7-7.3   47.6

7.4-9.0   57.9

Note: Table made from bar graph.