The concept of the elasticity of substitution has been investigated for years and the attempt to estimate its values was performed for different industries and countries, substantiating the relevance of the subject for economics. Whereas the role of the elasticity of substitution for different aspects has been theoretically and empirically analyzed, the fundamental determinants of this concept have been re-cently gaining more research interest. The aim of this thesis is to empirically test the impact of trade openness on the elasticity of substitution. Using the estimated elasticity of substitution values by Mallick (2012), a cross-sectional analysis has been carried out. The impact of country’s degree of trade openness on determin-ing the country’s elasticity of substitution is positive, but not significant when ac-counting for institutional aspects as degree of unionization and state intervention as well as further country specific characteristics. The results are distinguished by biased standard errors and can be classified as not robust for different country groups. Finally, further theoretical research and empirical analysis on legitimate determinants of the elasticity of substitution can provide more explanatory in-sights regarding the cross-country differences in its values.
Keywords: Elasticity of substitution, trade openness, CES production function.