There are different measures, but the one I had read some time ago was purely based on subjective happiness, not things like wealth, health care, or political stability -- only how people report their own happiness.
I was thinking about this after reading Joe Baegent's article yesterday about life in Belize and how poor, democratic and happy it is compared to the US.
Africa is stereotyped as a horrible, impoverished, war torn place, but if you went there, you'd be surprised how happy people are.
Botswana was probably the happiest place I've ever been.
On edit: Here's the purely subjective ranking:
http://thehappinessshow.com/HappiestCountries.htm 1. Nigeria
2. Mexico
3. Venezuela
4. El Salvador
5. Puerto Rico
When you combine a wealth component ("subjective well being") with happiness, Puerto Rico becomes the happiest place on earth, and Nigeria drops to just below the US.
Ranking of Countries by Level of "Subjective Well-Being"
1. Puerto Rico
2. Mexico
3. Denmark
4. Colombia
5. Ireland
6. Iceland
7. N. Ireland
8. Switzerland
9. Netherlands
10. Canada
11. Austria
12. El Salvador
13. Venezuela
14. Luxembourg
15. U.S.
16. Australia
17. New Zealand
18. Sweden
19. Nigeria
20. Norway