The elasticity of substitution as a proxy measure of economic integration

This study examines how the accession of Greece to the European Union affected the Greek economy. Transcendental production functions of agriculture, industry, and service sectors of Greece, Germany, and France were estimated and tested for structural stability. Based on two estimated parameters of sectoral production functions and the corresponding data on capital-to-labor ratios, sectoral elasticities of substitution were constructed as vectors of values, varying with time. It was found that the elasticities of the traded sectors, industry, and manufacturing converged. The elasticities of substitution of the nontraded sector service and the traded, but protected, sector of agriculture diverged.