What does a well-being perspective add to our understanding of poverty?

Drawing on unique survey data for rural Pakistan, we investigate the impact of socio-demographic factors on life satisfaction with particular emphasis on subjective well-being measurement to evaluate poverty and its different components. The data elicits information on overall well-being in terms of households’ satisfaction with the current socio-economic status as well as financial well-being regarding satisfaction with the current income or expenditure. We estimate a happiness model to explore to what extent a well-being perspective adds to our understanding of poverty. We find that the well-being approach closely depicts the idea of capability poverty in terms of the level education and health which both matter significantly. Our results moreover suggest that the proposed financial well-being approach is more promising in capturing both income and capability poverty on subjective grounds. This paper’s main contributions are as follows. First, we link the emerging field of happiness economics with development studies. We believe that this paper fills an important gap in the literature and may well inspire a new holistic look at poverty, beyond the conventional dimension of the lack of income. Second, we intend to challenge the view that poverty is best understood from a more macro-level without properly accounting for individuals’ own valuation of their well-being. Since poverty is often linked with human development, or the lack of it, this paper takes a special look at poverty and suggests that income poverty is only part of the picture.