The relationship between multidimensional psychological well-being and poverty

Oaker, Brandon

The relationship between multidimensional psychological well-being and poverty

Master Thesis

2019

Abstract

Evidence from various academic fields indicates that mental health and income are correlated. Additionally, evidence exists that an increase in income improves psychological well-being and evidence that poor psychological well-being negatively impacts income. The difficulty is that there is no definitive work pinpointing the direction of the causal relationship between income and psychological well-being, but studies are attempting to find out. Hence, this paper attempts to contribute to ongoing work with an IV estimation approach to determine the causal effects of psychological well-being on poverty. Using data provided by Haushofer and Shapiro, this paper finds evidence that an increase in income causes a reduction in depression and stress levels, along with increases in happiness and life satisfaction of the study participants. Additionally, it is found that these improvements in psychological well-being lead to increases in monthly household expenditure, especially health care. Furthermore, these findings indicate that when women receive a cash transfer, a significant proportion of that transfer is devoted to health care. All the estimates presented in the paper indicate that an improvement in economic well-being leads to an improvement in the mental health of the poor, which causes them to spend more and focus more on their health care.