Does Better Physical Function Make People Happier?

The objective of this paper is analyzing the impact of health status on the subjective well-being. The study uses the recent data from Indonesian Family Life Survey and the physical function index as a proxy for health status. Ordered Logit regression is performed to estimate the impact of the physical function on the subjective well-being. The study employs an instrumental variable approach to address the endogeneity issue of the physical function. After controlling for socioeconomic and demographic factors, it is found that the physical function has a positive effect on the subjective well-being. On average, an increase in 1 percent of an individual physical function will increase a probability of being very happy by 1.5 percent. However, this impact is decreased after including mental health on the regression model. Since the magnitude of the coefficient in IV-Ordered Logit is larger than in ordinary Ordered Logit, we interpret that there is no existence of a reversed causality. Then, it can be concluded that the physical function is a predictor for the subjective well-being.