Exploring the Relationship between Subjective Well-being and Objective Poverty Indices: Evidence from Panel Data in South Africa

Discussion Papers

No.707

by Takeshi Aida

March 2018

ABSTRACT

This study investigates the relationship between subjective well-being and objective poverty indices such as income poverty and multidimensional poverty. Although they are popular indices, very few studies have analyzed their relationship using rigorous e conometric approach. By applying the Blow-up and Cluster estimation of fixed effects ordered logit model to a panel data collected in South Africa, this study finds that both i ncome and multidimensional poverties significantly aggravate subjective well-being. However, their effects are not robust to the inclusion of household income, implying that b eing below the poverty lines does not provide additional information to explain subjective well-being. Moreover, a large part of the variation in subjective well-being cannot be explained by these objective poverty indices, suggesting strong complementarity between subjective and objective welfare measures. This study also f inds that multidimensional poverty index, constructed based on principal component a nalysis, performs better than the conventional approach, casting doubt on the conventional multidimensional poverty index.

Keywords:  subjective well-being; poverty line; multidimensional poverty index; panel data; multiple imputation

JEL classification: I32, D60, O12

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