New Economics Papers
on Microfinance
Issue of 2007‒10‒27
one paper chosen by
Aastha Pudasainee and Olivier Dagnelie

  1. Does money affect happiness and self-esteem? The poor borrowers’ perspective in a natural experiment By BECCHETTI LEONARDO; CASTRIOTA STEFANO

    Abstract: Natural experiments are advocated as one of the best solutions to solve causality dilemmas in the correlation between two variables. Studies on the relation between money and happiness argue that higher income should imply higher life satisfaction levels. However, happier people might also be more entreprising and active in looking for the best job opportunities. Therefore, identifying the causality direction gets difficult from an econometric point of view. Following this principle, research on the nexus between life satisfaction and income has looked at lottery winners or post-communism transition to document that exogenous changes in income generate effects of the same sign on happiness. In this paper we consider the unfortunate tsunami event as a negative lottery and examine the effects of the tsunami related income losses on life satisfaction and selfesteem of a sample of Sri Lankan microfinance borrowers. Our empirical findings help to discriminate between various effects of material damages and monetary losses, both having strong significant impact on the dependent variables. The main contributions of the paper are that (i) we overcome the causality problem by measuring the impact of an exogenous shock on human wellbeing and (ii) we do this on a sample of MFI borrowers of a developing country, thus with people close to the poverty line, instead of people from western or transition countries as in the previous literature.
    Date: 2007–10

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