Variable Elasticity of Substitution and Economic Growth: Theory and Evidence

Giannis Karagiannis, Theodore Palivos and Chris Papageorgiou ()

A chapter in New Trends in Macroeconomics, 2005, pp 21-37 from Springer

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.

Keywords: Elasticity of Substitution; Endogenous Growth; VES Production Functions (search for similar items in EconPapers)
Date: 2005
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-540-28556-4_2

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DOI: 10.1007/3-540-28556-3_2

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