![]() Taking into account the inverse relation between institutions and trade, we use a gravity model that explains bilateral trade for disaggregated goods and service sectors for 21 MENA countries over the period 1995-2014. This literature offers a broad consensus that poor institutions hamper trade, and that trade liberalization engenders institutional reforms. Although most of the countries suffer from a clear deficit of “good” institutions, the MENA region was neglected in the literature on institutions and trade. This paper explores the relation between institutions and trade in the Middle East and North Africa (MENA) region. ![]() Wood and Yang (2016) argue that World Governance Indicators 1 (WGI) scores for MENA countries are much lower than the scores of other countries, and significantly less than the scores of upper middle and high-income countries in five out of the six governance indicators. (2003) and data from the Heritage Foundation, Index of Economic Freedom (Koukhartchouk & Maurel, 2003). Empirical studies on the direct impact of institutions on trade use various data on institutional quality such as survey data from businessmen by the World Economic Forum on contractual enforcement and corruption (respectively Anderson & Marcouiller, 2002 Levchenko, 2007 Méon & Sekkat, 2007), institutional quality database compiled by Kaufmann et al. Other studies use survey information on country risk (such as the risk of nationalization, the prevalence of corruption, the efficiency of dispute resolution procedures, etc.) collected by private firms from professionals who have done business in the country (Knack & Keefer, 1995 Mauro, 1995). Overall, the `Alter' system (the cross-section comparison with others) seems to be more relevant in valuing income than the `Ego' system (the longitudinal self-comparison of income). Relative deprivation is also found to be important for understanding the income-happiness nexus while we find income expectations to be less relevant once we control for absolute income. We find absolute income to sit at the intersection between the `Ego' and the `Alter' systems and to play the most prominent role in explaining satisfaction with income. The model is then tested using the Consortium of Household Panels for European Socio-economic Research (CHER), a collection of 19 panel surveys including over 1.2 m. We show how the union of these two value systems and the use of relative deprivation measures can lead to a model able to accommodate a wide range of theories on income and happiness. ![]() The paper focuses on satisfaction with income and proposes a utility model built on two value systems, the `Ego' system - described as one own income assessment relatively to one own past and future income - and the `Alter' system - described as one own income assessment relatively to a reference group.
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