Bhutan has embarked on the gross national happiness (GNH) development concept. However, its operationalisation needs more focus on the issues of the smallholder farmers which comprise about two-thirds of the population. A practical implementation of GNH for rural areas is cattle crossbreeding for dairying, aiming not only to improve livelihoods of farming households and to meet the increasing demands of livestock products, but also to sustainably use natural resources. This thesis evaluates whether crossbreeding has benefited farmers from a GNH perspective across time and space. The study areas are described as extensive, semi-intensive, intensive and intensive peri-urban. In 2000, in each area participatory field workshops with farmers (n=120) and other stakeholders (n=28) were organised to select issues at farm level. Data on households, cropping, livestock and off-farm activities were collected by trained enumerators through interviewing 183 households in 2000 and 2004. In 2015 only 123 of the same households could be revisited; the other households had migrated to other areas or had given up farming, as rearing of livestock was no longer permitted in the intensive peri-urban area. In 2002, a national workshop with 20 experts was organised to select issues and their indicators for developing an integral approach to communicate progress in GNH development in the four areas. Selected indicators were standardised by establishing a performance value range for five performance categories of each indicator. The standardised indicator values were aggregated to an economic, societal and environmental index. The adoption of crossbreeding varied strongly between areas with high percentages of crossbred cattle in intensive areas and low percentages in the extensive area. Favourable conditions for adoption of crossbreeding were support by projects, functioning farmers' groups, access to urban markets and access to artificial insemination and extension services. Farmers in the intensive areas find livestock intensification through crossbreeding attractive as a source of regular and reliable income. Crossbreeding has not yet been able to reduce the gap between supply and demand of dairy products in Bhutan, but it reduces grazing pressure on common property resources. The integral assessment shows that challenges in the implementation of the GNH concept in rural areas are the increases in rural-urban migration and farm labour shortages, and the need for more equitable socio-economic development.