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Variable Elasticity of Substitution and Economic Growth: Theory and Evidence

In: New Trends in Macroeconomics

Author

Listed:
  • Giannis Karagiannis

    (University of Macedonia)

  • Theodore Palivos

    (University of Macedonia)

  • Chris Papageorgiou

    (Louisiana State University)

Abstract
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.

Suggested Citation

  • Giannis Karagiannis & Theodore Palivos & Chris Papageorgiou, 2005. "Variable Elasticity of Substitution and Economic Growth: Theory and Evidence," Springer Books, in: Claude Diebolt & Catherine Kyrtsou (ed.), New Trends in Macroeconomics, pages 21-37, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-28556-4_2
    DOI: 10.1007/3-540-28556-3_2
    as

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