Longitudinal Evidence on Social Trust and Happiness in China: Causal Effects and Mechanisms

Previous studies examining the impact of social trust on happiness often face the difficulties of tackling the problems of potential endogeneity. Using an instrumental variables strategy and a two-stage residual inclusion approach, this paper explores the causal impact of social trust on individual happiness in China. We find robust evidence that a positive, causal relationship between social trust and happiness exist in China. We also find significant heterogeneity in the impact across genders and places of residence. The happiness of males and urban residents is more likely to be affected by social trust, compared to the happiness of female and rural residents, respectively. We further show that the key mechanisms through which social trust affects happiness are changes in self-reported health, social ties, perceived fairness of the society and subjective socioeconomic status.