Abstract
Trade diversification patterns help explain the level of utilization of trade opportunities by countries, mainly the least developed. Empirical analyses show an inverse U relationship between trade diversification and level of development. Trade diversification measures used do not take into account differences in complexity of exports, and complexity indices only consider products with comparative advantages. This study seeks to cover both gaps by analyzing the differences in the determinants of trade diversification, considering the complexity of products exported by 19 Western Hemisphere countries from 1962 to 2017. The results show that after controlling for economic complexity, the inverted U relationship disappears. Development of financial markets positively affects the complexity of trade diversification in the long term, while the terms of trade that have a negative effect on trade diversification does not affect the complexity-corrected indices. In the short term, transaction costs and trade openness appear to have a significant effect.