Explaining the trade-growth link: Assessing diffusion-based and structure-based models of exchange

International development scholars advance contrasting theoretical explanations for the hypothesized link between trade and growth. Diffusion-based models suggest that trade with integrated partners provides states with greater access to technical knowledge. Structure-based models propose that trading with isolated partners produces a bargaining advantage. In this study, we adjudicate between these competing visions by applying Bonacich’s (1987) measure of power centrality to the international trade network. We manipulate the procedure’s “attenuation factor” (β) such that a state’s trade centrality can be enhanced when a state is connected to either central or isolated partners. Drawing from a sample of 101 states during the 1980–2000 period, we use difference-of-logs models to assess the impact of trade centrality on economic growth net of controls. We find that the positive relationship between trade centrality and growth peaks when states trade with isolated partners in the periphery.

► We adjudicate between different models that explain the link between trade and growth. ► We examine whether countries benefit more from trade with central or isolated partners. ► The link between trade and growth is strongest when states trade with isolated partners.