Happiness, economic growth and air pollution: an empirical investigation

Abstract

Previous studies on the effect of economic growth on happiness have produced mixed results. In an attempt to explain these ambiguous results, this study investigates the effect of gross domestic product (GDP) per capita on happiness by taking into account the role of air pollution in each country using annual unbalanced panel data of 59 countries between 2005 and 2015. The results indicated that an increase in GDP per capita can lead to a decrease in happiness if air pollution level is sufficiently high and, in contrast, can lead to an increase in happiness if air pollution level is too low. Moreover, our results revealed monotonic and non-monotonic relationships between air pollution and happiness. We also found that leaving air pollution out of the analysis led to about 15-27% underestimation of the income effect. These results provide some important implications for policymakers seeking to increase economic growth without aggravating happiness.