The Impact of Trade Diversity and Trading Partners on Domestic Economic Growth

This paper studies the effects of trade diversity and trading partners on domestic economic growth for 69 countries during the period 1970 similar to 2000. We develop the index to measure trade diversity by using Herfindahl index and intra-industry trade index, and also calculate weighted average growth rate of trading partners using bilateral trade volume as weights. In addition, the variables, such as growth rate of investment, rate of inflation, and openness are included in regression analysis. The results show that trade affects economic growth; the economic growth rates are high in countries with high openness, the more commodity variety of exports and imports, the more variety of trading partners, and the high economic growth of trading partners. This paper suggests policy implications that we have to diversify trading commodities and trading partners as well as increase trade volume in order to maximize the positive effects of trade on economic growth.