This study investigates the ways in which terrain ruggedness affects sectoral diversification. A cross-country analysis using data from 142 countries over the period 1970‒2007 documents an inverted U-shaped link between terrain ruggedness and sectoral diversification, which mainly works through the extensive margin of diversification. A within-country analysis based on United States (US) state-level data over the period 1997‒2011 confirms this non-monotonic relationship. The within-country analysis further reveals that an important mechanism through which terrain ruggedness affects sectoral diversification is the spatial concentration of economic activity, as measured by the concentration of satellite-based night lights
