Decoding the Happiness: Analyzing the Components of World Happiness Index

The aim of this study is to reveal the effects of selected World Happiness Index components on the happiness index value. Thus, the study investigates effect of log GDP per capita, social support, and freedom to make life choices on happiness index across 29 European countries using panel data from 2019 to 2024 and applies the Eberhardt&Teal’s (2010) Augmented Mean Group (AMG) estimator to account for cross-sectional dependence and heterogeneity. Results show that, at the European aggregate level, a one-unit increase in social support is associated with an increase of 0.84 in the Happiness Index, while GDP and freedom yield statistically insignificant effects. However, country-specific findings vary. For instance, Austria, Iceland and the Netherlands show significant negative effects of increasing income on Happiness Index. Thus for these countries the AMG results support the Easterlin Paradox in several high-income nations, where increased income correlates with decreased happiness. Social Support and Fredom to make life choice has positive effect on happiness for Estonia, France, Iceland, Ireland, Latvia, Netherlands, Romania, Slovakia and Türkiye. The study concludes that subjective well-being is shaped more by social and institutional dynamics than by economic growth alone, highlighting the importance of context-specific and multidimensional policy frameworks in improving life satisfaction.