A Production Function Approach to Economic Integration: A Comparative Study

During the last thirty years the Greek economy gradually opened to the world economy via trade liberalization. In 1962, Greece joined the European Union (EU) as an associate member, and in 1981 became the tenth member of the EU. The purpose of the study is to examine how economic integration affected the Greek economy. Cobb-Douglas (CD) production functions for agriculture, industry and service sectors of the Greek and West German economies are estimated, tested f or structural stability and compared. Several structural stability tests were utilized. These tests are the Chow test, the CTJSUM test, the OIJSTJMSQ test and the Moving Chow test. While both production functions, the unconstrained and the constrained or Constant Returns to Scale (CRS) are estimated, the latter gave better results. The exact interpretation of all structural stability tests is difficult. Despite this, a clear pattern of the effects of economic integration on the Greek productive sectors is demonstrated.