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Variable Elasticity of Substitution and Economic Growth: Theory and Evidence

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New Trends in Macroeconomics

Summary

We construct a one-sector growth model where the technology is described by a Variable Elasticity of Substitution (VES) production function. This framework allows the elasticity of factor substitution to interact with the level of economic development. First, we show that the model can exhibit unbounded endogenous growth despite the absence of exogenous technical change and the presence of non-reproducible factors. Second, we provide some empirical estimates of the elasticity of substitution, using a panel of 82 countries over a 28-year period, which admit the possibility of a VES aggregate production function with an elasticity of substitution that is greater than one and consequently of unbounded endogenous growth.

Karagiannis and Palivos gratefully acknowledge financial support from the Greek Ministry of Education and the EU (Program PYTHAGORAS).

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Author information

Authors and Affiliations

  1. Department of International & European Economic & Political Studies, University of Macedonia, 156 Egnatia Street, GR-540 06, Thessaloniki, Greece

    Giannis Karagiannis

  2. Department of Economics, University of Macedonia, 156 Egnatia Street, GR-540 06, Thessaloniki, Greece

    Theodore Palivos

  3. Department of Economics, Louisiana State University, Baton Rouge, LA, 70803, USA

    Chris Papageorgiou

Authors
  1. Giannis Karagiannis
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  2. Theodore Palivos
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  3. Chris Papageorgiou
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Editor information

Editors and Affiliations

  1. BETA/CNRS, Faculty of Economics, University of Strasbourg I, 61 Avenue de la Forêt Noire, 67085, Strasbourg Cedex, France

    Claude Diebolt (Directeur de Recherche au CNRS) (Directeur de Recherche au CNRS)

  2. Department of Economics, University of Macedonia, Egnatia Street 156, 54006, Thessaloniki, Greece

    Catherine Kyrtsou

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© 2005 Springer-Verlag Berlin Heidelberg

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Karagiannis, G., Palivos, T., Papageorgiou, C. (2005). Variable Elasticity of Substitution and Economic Growth: Theory and Evidence. In: Diebolt, C., Kyrtsou, C. (eds) New Trends in Macroeconomics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/3-540-28556-3_2

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