The elusive effects of trade on growth: Export diversity and economic take-off

The hallmark of the voluminous growth determinants literature is the absence of a clear-cut effect of trade on growth. Numerous candidate regressors have been motivated by alternative theories and tested by a multitude of empirical studies, but not one trade regressor has been robustly related to growth. In this paper, we leverage Melitz's (2003) insights regarding sectoral export dynamics and Feenstra and Kee's (2008) approach to productivity and sectoral export diversity to propose a structured approach to trade and growth determinants. Instead of relying on aggregate trade measures as previous studies have done, we examine the diversity of sectoral exports and the development of broad-based comparative advantage as a potential growth determinant. Controlling for model uncertainty and endogeneity, we find that export diversity serves as a crucial growth determinant for low-income countries, an effect that weakens with the level of development.