Eugenio Proto, an Associate Professor at Warwick University, and Aldo Rustichini, an Economics Professor at the University of Minnesota, found that the relationship between national income and national life satisfaction is “hump shaped.” They discovered that there is a clear positive relation in poorer nations, then flattens out at around $30,000-$35,000, and then turns negative. The relationship between national income and life satisfaction are critical to policymakers.
In previous studies it was found that life satisfaction seems to be only increasing with income. The main findings in Proto’s and Rustichini’s study include that most of the variation of life satisfaction from GDP is found in countries with per capita GDP below $10,000. They also found that countries with GDP per capita over $20,000 do not see as much of an obvious relationship between GDP and happiness. The most startling part of the study was that the relationship between happiness and national income turns negative for richer countries.
According to the study, GDP growth is desirable for poorer countries in order to increase life satisfaction. The study raises the question, is long term GDP growth desirable for rich nations? The findings suggest that at a certain point, no. Regardless, Proto and Rustichini state that people may not always choose the option to maximize happiness, but will choose the option that creates higher incomes. People often believe that the more money they have the happier they will be, but in this new study it is found that richer countries may actually be less happy.
What implications does this have on international business? One area that this study could affect is policymaking. According to this study, policymakers in poorer countries should strive for long term GDP growth. In contrast, rich countries may not want to increase GDP growth in order to keep a high life satisfaction.
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