How Happy are the Albanians: an Empirical ANALYSIS OF LIFE SATISFACTION

This paper uses the nationally representative Albanian Living Standards Measurement Survey from 2005 to investigate the determinants of life satisfaction.In common with much of the existing empirical economics literature that models life satisfaction (or subjective well-being), this paper exploits an ordered probit model. In contrast to this literature, however, the current study places an important emphasis on regression model evaluation. Diagnostic testing revealed a number of econometric model deficiencies but the explicit incorporation of a heteroscedastic function into the ordered probit model resolved all detected problems. The tenor of the key findings generally reflects that found in the literature on the determinants of life satisfaction for both advanced capitalist and transitional economies. However, a number of additional themes with a strong Albanian flavour were interrogated. In particular, our study revealed evidence of long memories among Albanian respondents with respect to the collapse of that country’s notorious pyramid scheme and the scarring effects of this episode continue to impact on life satisfaction even with the passage of almost eight years. In addition, a sizeable effect for communal level crime activity on life satisfaction was also detected.