Unpacking the EU–Vietnam Free Trade Agreement: Phased Impacts on Trade Creation and Trade Diversion
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Purpose: This paper examines the phased impacts of the European Union-Vietnam Free Trade Agreement (EVFTA) on bilateral trade flows, with a particular focus on distinguishing trade creation (TC) and trade diversion (TD) effects across different stages of the agreement's implementation. Design/methodology/approach: This study applies a gravity model estimated with Poisson Pseudo-Maximum Likelihood (PPML) and robust fixed effects to Vietnam- EU trade data from 2001 to 2023, capturing the phased impacts of the EVFTA across proposed, negotiation, signing, and enforcement stages. Findings: The EVFTA significantly promotes TC among members, particularly during the proposed, framework signing, and enforcement stages. Minor disruptions during negotiation reflect institutional adjustments, but the overall effects are positive. TD is limited, confirming welfare gains, that are consistent with dynamic trade literature. Research limitations/implications: The results highlight the need for early-stage legal alignment, transparent negotiation strategies, and transitional support to maximize FTA benefits. The dynamic and phased nature of impacts calls for flexible, long-term policymaking to sustain trade and investment growth. Originality/value: This study is the first to empirically evaluate the EVFTA's dynamic impacts across implementation phases, distinguishing TC and TC effects. It advances FTA research by applying dynamic estimation techniques to staged liberalization schedules, offering actionable insights for policymakers amid rising global uncertainties.
Abstract
Purpose: This paper examines the phased impacts of the European Union-Vietnam Free Trade Agreement (EVFTA) on bilateral trade flows, with a particular focus on distinguishing trade creation (TC) and trade diversion (TD) effects across different stages of the agreement's implementation. Design/methodology/approach: This study applies a gravity model estimated with Poisson Pseudo-Maximum Likelihood (PPML) and robust fixed effects to Vietnam- EU trade data from 2001 to 2023, capturing the phased impacts of the EVFTA across proposed, negotiation, signing, and enforcement stages. Findings: The EVFTA significantly promotes TC among members, particularly during the proposed, framework signing, and enforcement stages. Minor disruptions during negotiation reflect institutional adjustments, but the overall effects are positive. TD is limited, confirming welfare gains, that are consistent with dynamic trade literature. Research limitations/implications: The results highlight the need for early-stage legal alignment, transparent negotiation strategies, and transitional support to maximize FTA benefits. The dynamic and phased nature of impacts calls for flexible, long-term policymaking to sustain trade and investment growth. Originality/value: This study is the first to empirically evaluate the EVFTA's dynamic impacts across implementation phases, distinguishing TC and TC effects. It advances FTA research by applying dynamic estimation techniques to staged liberalization schedules, offering actionable insights for policymakers amid rising global uncertainties.