**Table 4. Trade openness, diversification and growth: Baseline Specification** _Dependent Variable: see columns (5-year averages)_

_Estimation method: GMM-IV System Estimator (Arellano and Bover, 1995; Blundell and Bond 1998)_

||Annua<br>O|l Average Grow<br>Cil|th of:|Annua<br>O|l Average Grow<br>Cil|th of:|
|---|---|---|---|---|---|---|
||utput per<br>worker|apta per<br>worker|TFP<sup>(1)</sup>|utput per<br>worker|apta per<br>worker|TFP<sup>(1)</sup>|
||[1]|[2]|[3]|[4]|[5]|[6]|
|_Convergence_|||||||
|Initial GDP per worker|-0.029<sup>***</sup>|-0.021<sup>***</sup>|-0.018<sup>***</sup>|-0.030<sup>***</sup>|-0.023<sup>***</sup>|-0.019<sup>***</sup>|
|_(in logs)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|
|_Trade Openness_|||||||
|Exports and Imports<br>|0.016<sup>**</sup><br>|0.013<sup>**</sup><br>|0.006<br>|0.015<sup>**</sup><br>|0.013<sup>**</sup><br>|0.007<br>|
|_(% of GDP, logs)_|_(0.000)_|_(-0.004)_|_(-0.156)_|_(0.000)_|_(-0.004)_|_(-0.084)_|
|_Trade Diversification_|||||||
|Market concentration<br>|0.015<sup>***</sup>|-0.002|0.021<sup>***</sup>|0.016<sup>***</sup>|-0.003|0.023<sup>***</sup>|
|_(Herfindahl index)_|_(0.000)_|_(-0.411)_|_(0.000)_|_(0.000)_|_(-0.269)_|_(0.000)_|
|Product concentration|-0.029<sup>***</sup>|-0.019<sup>***</sup>|-0.022<sup>***</sup>|-0.029<sup>***</sup>|-0.020<sup>***</sup>|-0.021<sup>***</sup>|
|_(Herfindahl index)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|
|_Natural Resource Exports_|||||||
|Natural resource exports|0.025<sup>***</sup>|0.021<sup>***</sup>|0.020<sup>***</sup>|0.028<sup>***</sup>|0.023<sup>***</sup>|0.021<sup>***</sup>|
|_(% of GDP)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|
|Natural resource exports|-0.032<sup>***</sup>|-0.021<sup>***</sup>|-0.023<sup>***</sup>|-0.034<sup>***</sup>|-0.025<sup>***</sup>|-0.023<sup>***</sup>|
|_(% of total exports)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|_(0.000)_|
|_Volatility_|||||||
|Growth volatility|..|..|..|-0.092<sup>*</sup>|0.217<sup>***</sup>|-0.192<sup>***</sup>|
|_(S.D. growth per worker)_||||_(-0.010)_|_(0.000)_|_(0.000)_|
|Constant|0.120<sup>***</sup>|0.064<sup>**</sup>|0.086<sup>***</sup>|0.133<sup>***</sup>|0.065<sup>**</sup>|0.096<sup>***</sup>|
||_(0.000)_|_(-0.003)_|_(0.000)_|_(0.000)_|_(-0.003)_|_(0.000)_|
|Observations|842|842|811|842|842|811|
|AR(1)|0.000|0.001|0.000|0.000|0.002|0.001|
|AR(2)|0.420|0.019|0.707|0.176|0.176|0.452|
|Hansen|0.428|0.040|0.215|0.448|0.069|0.420|

_p_ -values in parentheses * _p_ < 0.05, ** _p_ < 0.01, *** _p_ < 0.001 <u>(1) - refers to TFP as reported by the World Bank Group</u> The results from Table 4 indicate that the impact of the volume of trade (as proxied by exports and imports to GDP) affects output growth through physical capital accumulation rather than TFP growth. The coefficient estimate of trade openness in the physical capital equation is positive, significant, and equal to 0.013. This implies that doubling trade openness would increase the growth rate of capital per worker by 0.9 percentage points per year. In contrast, the volume of trade appears not to have a significant impact on TFP growth.

Export product concentration has a negative and significant relationship not only with growth per worker but also with the sources of growth per worker. The coefficient estimate of export product concentration in the TFP growth equation is slightly larger than the one in the capital accumulation equation. This finding implies that the impact of trade in product diversification on economic growth is transmitted through a faster accumulation of physical capital and an acceleration of TFP growth. Our estimates suggest that halving the extent of export product concentration may increase the growth rate of capital accumulation by 1.4 percentage points per year and that of TFP growth by 1.5 percentage points per year. On the other hand, export market concentration has a positive impact on growth per worker in the two _page 22_