EFFECTIVENESS OF THE DEEP AND COMPREHENSIVE FREE TRADE AREA IN GEORGIA

Abstract

The purpose of the study it to estimate the ex-post impact of the DCFTA on trade between Georgia and the European Union, as well as evaluate the welfare results of trade creation and trade diversion effects. Through the investigation of the existing literature, we can observe that little research has applied theoretical gravity model with inclusion of the trade creation and trade diversion variables on assessment of the impact of DCFTA in the model for 2014-2021 period. Significance of the study stems from the limitation identified in the literature and necessity to assess the opportunities created as a result of the DCFTA in Georgia. The paper applies a well-known structural gravity model. Evaluation is based on the panel dataset that includes bilateral trade flows of Georgia with European Union countries and main trade partners. We analyse data for 18 years, from 2004 to 2021. Final dataset contains 1440 observations. According to research results, the gravity model estimation showed that though positive, the impact of DCFTA on trade is not statistically significant. Research results suggest that due to the DCFTA, EU-Georgia trade increased approximately by 17% and the agreement has a trade creation effect.