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Accounting for Unobserved Country Heterogeneity in Happiness Research: Country Fixed Effects versus Region Fixed Effects

Fischer, Justina AV (2010): Accounting for Unobserved Country Heterogeneity in Happiness Research: Country Fixed Effects versus Region Fixed Effects.

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Abstract

Many empirical studies are ambiguous about whether good formal institutions are conducive to subjective well-being or not. Possibly, this ambiguity is caused by cross-section models that do not account for unobserved cultural and institutional effects. Using the World Value Survey 1980-2005, this paper supports a positive relation in a country panel framework that accounts for unobserved, time-invariant country heterogeneity. This study also shows that using supra-national region dummies (by geography or language) in a country-random effects model appears to be a sufficient substitution for omitted country fixed effects.

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