When the Going Gets Tough … the Effect of Economic Reform Programmes on National Well-Being

Abstract

Well-being is an essential human need and has social, psychological and economic benefits. Consequently, social scientists and economists, in particular, want to know whether economic reform can lead to increased (and sustainable) happiness. To answer this question, we applied a new approach—investigating the effect of economic reform programmes on national well-being for 154 countries between 2005 and 2018. As the dependent variable, we employed national subjective well-being scores based on people’s evaluation of their satisfaction with life. International Monetary Fund economic reform programmes provided a sufficiently long time–series and global presence for the main independent variable. We used a treatment effect model and fixed-effects instrumental variable panel with the novel approach of synthetic instruments, to address selection bias generated by the non-random selection of countries into International Monetary Fund programme participation, also controlling for unobservable characteristics influencing both International Monetary Fund participation and national well-being. Irrespective of the approach used, empirical findings show that economic reform programmes lead to increased national well-being globally, both in the short-term and the long-term. The results do not imply that International Monetary Fund arrangements should be used as policy tools to increase national well-being. They empirically confirm our argument that improvements in national economies sustaining increased well-being require intentional effort and engagement.