Trade partner diversification and growth: how trade links matter

We analyse the effects of a country’s export connections on its income growth using Trade Partner Diversification (TPD) measures that capture the country’s relative importance in the international trade network. On top of the standard trade openness measures, TPD measures are shown to enter growth regressions positively and significantly, where one standard deviation increase in TPD is associated with a 1 to 1.5 percentage point increase in the annual growth rate. Threshold analyses show that TPD measures are positively and significantly cor- related with growth in countries that have low financial depth, high inflation, low levels of human capital, or high trade openness.