Relationship between GDP and Average Life Satisfaction

Economics 1
Economics and Quantitative Analysis
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Economics 2
Economics and Quantitative Analysis
Purpose
This report Gross domestic Product (GDP) is the monetary measure of a country’s
economic performance through estimation of aggregate output. Average life satisfaction on the
other hand, measures how individuals evaluate their life as a whole rather than their present
feelings. This research seeks to report on the statistical association between average life
satisfaction and GDP per Capita. The finding of this study will aid economists and policy makers
to understand the behavior of these economic variables.
Background
The relationship between GDP and average life satisfaction has attracted considerable
interest among scholars and economists alike. Proto and Rustichin (2014) found a positive
relationship between the two variables using cross sectional evidence. However, the scholars
proceeded to argue that there was no significant relationship between the variables using time
series analysis procedures. The researchers also concurred with Degutis, Urbonavicius, and
Gaizutis (2010) that there is a greater positive relationship between GDP and life satisfaction in
poorer nations compared to richer countries and regions. Economists are interested in this topic
because it is critical for policy making. Governments rely on economists to develop proper
measures of well-being and hence enabling governments to develop policies and initiatives that
cause a greater impact on the well-being of their citizens.
Method
The reliability of the data source is integral for any research. The data used for this study
was obtained from the oecdbetterlifeindex website. The website is a reliable secondary data
source for economists seeking to establish relationship between different economic aspects. This

Economics 3
study shall use the quantitative analysis techniques to establish the relationship between the
variables of interest. The linear regression model which is a predictive model shall be used to
establish relationship between gross domestic product and life satisfaction. The regression
analysis model is a scientific model that seeks to establish the cause and effect relationship
between variables. The model assumptions include presence of properties such as linear
relationship, normality, lack of autocorrelation, and homoscedasticity.
Results
Descriptive Analysis
Table 1
The table above shows the descriptive statistics of average life satisfaction scores and
annual GDP per capita. The mean life satisfaction score is 6.58 while mean per capital GDP for
the countries under study is $39011.51. Greece and Portugal recorded the minimum average life
satisfaction scores at 5.2. The highest average life satisfaction score was 7.5 which was attained
by Denmark, Finland, Iceland, Norway, and Switzerland. The minimum GDP per Capita was
Mexico’s $17,122.53 while the highest was Luxembourg’s $86,788.14.