Assessing the role of determinants and evfta in shaping vietnams wood export to eu countries insights from a gravity model analysis

Tóm tắt Tuy đã có những nghiên cứu được thực hiện để phân tích những nhân tố tác động đến xuất nhập khẩu đồ gỗ tại Việt Nam, những phân tích cụ thể xung quanh việc xuất khẩu đồ gỗ đến Liên minh Châu Âu dưới tác động của hiệp định EVFTA cùng những yếu tố khác chưa từng được thực hiện một cách hoàn chỉnh. Nghiên cứu của chúng tôi sử dụng mô hình trọng lực mở rộng cho dữ liệu bảng để xem xét các biến số ảnh hưởng đến xuất khẩu đồ gỗ của Việt Nam sang thị trường EU giai đoạn 20162021 trong bối cảnh EVFTA có hiệu lực. Kết quả nghiên cứu chỉ ra rằng trong khi những yếu tố như GDP bình quân đầu người, lợi thế so sánh, khoảng cách địa lý và hiệp định EVFTA có tác động tích cực, độ mở thương mại và thuế quan tăng sẽ gây cản trở đến ngành xuất khẩu gỗ. Một số chính sách đã được đề xuất dựa trên kết quả nghiên cứu nhằm hỗ trợ chính phủ cũng như các nhà hoạch định chính sách đưa ra các giải pháp và chiến lược phù hợp, thúc đẩy xuất khẩu gỗ sang thị trường EU. Từ khóa: EVFTA, đồ gỗ, xuất khẩu, Việt Nam, EU, mô hình trọng lực Abstract Although there have been studies that analyze the factors affecting the import and export of wooden furniture in Vietnam, the specific analysis surrounding the export of wooden products to the European Union under the impact of the agreement The EVFTA and other elements have never been fully implemented. Our study uses an extended gravity model for panel data to examine variables affecting Vietnams furniture exports to the EU market in the 20162021 period in the context of the EVFTA in effect. Research results show that while factors such as GDP per capita, comparative advantage, geographical distance and the EVFTA agreement have a positive effect, increases in trade openness and tariffs will hinder the wood export industry. A number of policies have been proposed based on research results to support the government

MID-TERM RESEARCH PAPER Subject: International Trade PolicyTopic: ASSESSING THE ROLE OF DETERMINANTS AND EVFTA IN SHAPING VIETNAM'S WOOD EXPORT TO EU COUNTRIES: INSIGHTS

FROM A GRAVITY MODEL ANALYSIS Group:

Class: TMAE301 Intake:

Instructor: Dr Vu Huyen Phuong

Ha Noi, May 2023

ASSESSING THE ROLE OF DETERMINANTS AND EVFTA IN SHAPING VIETNAM'S WOOD EXPORT TO EU COUNTRIES: INSIGHTS FROM A

GRAVITY MODEL ANALYSIS

Vũ Huyền Phương

Giảng viên Viện Kinh tế và Kinh doanh quốc tế

Trường Đại học Ngoại thương, Hà Nội, Việt Nam

Tóm tắt

Tuy đã có những nghiên cứu được thực hiện để phân tích những nhân tố tác động đến xuấtnhập khẩu đồ gỗ tại Việt Nam, những phân tích cụ thể xung quanh việc xuất khẩu đồ gỗ đếnLiên minh Châu Âu dưới tác động của hiệp định EVFTA cùng những yếu tố khác chưa từngđược thực hiện một cách hoàn chỉnh Nghiên cứu của chúng tôi sử dụng mô hình trọng lực mởrộng cho dữ liệu bảng để xem xét các biến số ảnh hưởng đến xuất khẩu đồ gỗ của Việt Namsang thị trường EU giai đoạn 2016-2021 trong bối cảnh EVFTA có hiệu lực Kết quả nghiêncứu chỉ ra rằng trong khi những yếu tố như GDP bình quân đầu người, lợi thế so sánh, khoảngcách địa lý và hiệp định EVFTA có tác động tích cực, độ mở thương mại và thuế quan tăng sẽgây cản trở đến ngành xuất khẩu gỗ Một số chính sách đã được đề xuất dựa trên kết quảnghiên cứu nhằm hỗ trợ chính phủ cũng như các nhà hoạch định chính sách đưa ra các giảipháp và chiến lược phù hợp, thúc đẩy xuất khẩu gỗ sang thị trường EU

Từ khóa: EVFTA, đồ gỗ, xuất khẩu, Việt Nam, EU, mô hình trọng lực

as well as policy makers to come up with efficient solutions and strategies, promoting timber exports to the EU market.

Key words: EVFTA, wooden products, export, Vietnam, EU, gravity model

I Introduction

1 Overview of EVFTA

European - Vietnam Free Trade Agreement (EVFTA) is a new generation of Free TradeAgreement between Vietnam and twenty-seven European Union members Once it wassigned on 30 June 2019, it has opened numerous opportunities for both parties Vietnam’seconomy has been reported to be improving noticeably since the agreement was formed.According to WTO and International Trade Center VCCI, the Agreement consists of 17Chapters, 2 Protocols, 8 Annexes, 2 Memorandum of Understanding and 4 Joint Statementsthat cover many issues These are the key provisions and implications of the EVFTA'spolicies:

 Tariff Reductions:

One of the central elements of the EVFTA is the reduction or elimination of tariffs onvarious goods and services Under the agreement, both the EU and Vietnam commit togradually lowering or removing import duties on a wide range of products, providingbusinesses with increased market access This tariff liberalization creates opportunitiesfor exporters and can lead to increased trade volumes between the two parties

 Non-Tariff Measures:

In addition to tariff reductions, the EVFTA addresses non-tariff measures (NTMs) thatcan act as barriers to trade The agreement includes provisions aimed at reducingtechnical barriers, simplifying customs procedures, and promoting regulatorycooperation By harmonizing standards and regulations, the EVFTA seeks to facilitatetrade by streamlining administrative processes and promoting greater transparency

 Services and Investment:

The EVFTA also covers services and investment, providing a framework for marketaccess and fair treatment of investors It includes commitments to open up andliberalize sectors such as financial services, telecommunications, and transportation

By facilitating cross-border trade in services and providing a more predictable andtransparent investment environment, the agreement encourages investment flows andpromotes economic integration between the EU and Vietnam

 Intellectual Property Rights (IPR) Protection:

Intellectual property rights protection is an essential aspect of the EVFTA Theagreement strengthens the legal framework for the protection and enforcement ofintellectual property rights in Vietnam, aligning it with international standards Thisprovision enhances the protection of trademarks, patents, copyrights, and geographicalindications Strengthened IPR protection can encourage innovation, technologytransfer, and investment in research and development, benefiting both EU andVietnamese businesses

 Sustainable Development:

The EVFTA incorporates a chapter on trade and sustainable development, reflectingthe shared commitment to environmental protection, labor rights, and sustainable

development goals The agreement includes provisions to promote and enforceinternationally recognized labor standards, as well as to support environmentalprotection and sustainable resource management By integrating sustainabilityconsiderations into trade and investment activities, the EVFTA aims to foster long-term economic growth that is socially and environmentally responsible.

 Dispute Settlement Mechanism:

The EVFTA includes a comprehensive dispute settlement mechanism to resolve anyconflicts or disputes arising from the interpretation or implementation of theagreement This mechanism provides a transparent and predictable framework forresolving trade- related disputes, ensuring that both parties have recourse to addressany violations or breaches of the agreement's provisions

EVFTA’s effectiveness exceeds any of existing trade agreements The agreement between the

€200 billion Vietnamese market and the €16 trillion European single market establishes aninstitutional foundation with common rules, regulations and values Intellectual propertyrights, dispute resolution, environmental standards and food safety have always been difficultfor trade agreements to set such high requirements due to their complexity However, EVFTAmanages to regulate those areas of commercial transaction, which consequently leads to amore convenient and less risky trade agreement This is the key for enormous opportunitiesfor both parties in terms of business and trade After all, the core purpose of the EVFTA is tomake it easier to do business between the two markets Currently, the trade turnover betweenVietnam and the European single market is €37 billion

2 Background information of wooden product trade

Timber and wooden products have always been one of the major exports of Vietnam in recentyears In 2022, it is ranked 6th out of all Vietnamese exported products, with a total value of15.86 billion US dollars The ideal natural conditions of Vietnam allow for even larger timbercultivation hence, its potential is predicted to even grow more dramatically in the future

In the structure of the wooden furniture supply market, Vietnam is the 5th largest woodenfurniture supplier to the EU in 2022, reaching 140.5 thousand tons, worth 679.7 million(equivalent to USD 734 million), an increase of 3% in volume and an increase of 38% invalue compared to 2021 However, the proportion of imports from Vietnam only accounts for1.9% of the total import value of wooden furniture of Vietnam

Nevertheless, according to estimates of the General Department of Customs, the exportturnover of wood and wood products to the EU market in March 2023 reached 55.2 millionUSD, down 26.4% compared to March 2022 Generally, in the first three months of 2023, theexport turnover of wood and wood products to the EU market is estimated at 133.2 millionUSD, down 37.1% over the same period in 2022 This is due to inflation, depression and othereconomical factors that happened in Europe Another major factor is that a large amount of

Vietnamese wooden products did not meet the EU’s requirement in terms of quality,transparency and other ethical elements.

Hence, Vietnamese government timber businesses ought to determine factors that influencethe exportation to the EU, both positively and negatively, in order to adjust the policies aswell as strategies for the sake of boosting the timber industry

3 Significance of the study

The timber sector has always been one of the sectors that contribute to the major part of totalVietnamese exportation Research on the determinants of Vietnamese wooden product export

to the EU allows to show and quantify the impact of these factors on the export of Vietnamesetimber goods, both meaningful in terms of practical as well as scientific significance Theresults of that study together with in-depth qualitative studies will serve as an important basisfor developing solutions to boost Vietnam's wooden product exports and maintaining itsposition as one of the largest exporters in the EU market

4 Research objectives

This study will determine the factors that have an influence on the change in wooden productsexportation from Vietnam to EU countries and how each of them plays the role in altering theexporting data, using the gravity model After analyzing and explaining results, suggestions ofpolicy implications and business strategies will be made for the government and timberbusinesses

In order to implement the study and achieve research objectives, several questions are madethat need answering:

 What are the factors that might have an impact on wooden products exportation?

 What is the level of impact resulting from the listed factors? What is the impact trend?

 What are the suggested solutions to the corresponding affairs?

5 Subject and scope of the study

The research subject is the impact of EU- Vietnam FTA (EVFTA) on Vietnam’s timberexports The scope of the research revolves around Vietnam’s fishery exports data to 27 EUcountries (Austria, Belgium, Bulgaria, Croatia, Republic of Cyprus, Czech Republic,Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia,Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia,Spain and Sweden) The time frame for the data collected is from 2016 to 2021

II Literature review

Wooden products have become increasingly important in the trade relationship betweenVietnam and the European Union (EU), which has seen significant growth For policymakersand industry stakeholders, it is crucial to understand the factors that influence the woodenproduct export from Vietnam to the EU This literature review intends to review existingresearch on the topic with an emphasis on studies that have used a gravity model method The

relevant previous research will be discussed first, followed by the identification of theliterature's research gaps.

1 Related Previous Research:

a Determinants of wooden product export from Vietnam to the EU

Using a gravity model method, several studies have looked into the factors that influence thewooden product export from Vietnam to the EU These researches have offered insightfulinformation about the variables affecting trade flows

In a comprehensive study conducted by Thi Thanh Huyen Vu, Gang Tian, Bin Zhang &Thanh Van Nguyen (2020), the determinants of Vietnam's wood product trade wereextensively examined using a gravity model The study discovered that trade flows weresignificantly influenced by GDP, population, and distance The study revealed that countrieswith larger economies and populations exhibited higher levels of trade with Vietnam.Moreover, it also emphasized the significance of market access and trade agreements inpromoting the export of wooden products from Vietnam to the EU According to the report,trade with Vietnam in the wooden product sector grew for nations that maintained lower tradebarriers and participated in preferential trade agreements It is noteworthy to point out that thisstudy did not focus specifically on the EU market, showing a research gap regarding theparticular determinants relevant to the trade relationship between Vietnam and the EU

Furthermore, Kangas and Niskanen's 2003 study of the factors affecting trade in forestryproducts discovered that distance, per capita income, importer and exporter GDP all had animpact on trade flows These results underlined how important economic variables are indetermining trade patterns in the wooden product sector

In order to study the multilateral flow of logs from tropical regions and evaluate how politicaland economic systems affect trade, Buongiorno, Tenny, and Gilless (1980) used a gravitymodel The researchers found that the distance needed for transportation was the main factoraffecting the volume of trade in the wooden product sector The study also found that anumber of other variables, including the size of the importing country, relative prices, thelevel of development and the availability of wood in the exporting country, and the overallvolume of trade between countries, had an impact on the flow of logs

Additionally, a number of studies have examined a number of variables that affect the trade inwooden products between Vietnam and the EU According to many studies (Akyüz et al.,2010; Buongiorno, 2015, 2016; Das et al., 2018; Hujala et al., 2013; Zhang & Yanshu, 2009),these variables include population, exchange rates, trade agreements, common languages, andcommon borders The results of these studies have shown that the export of wooden products

is significantly impacted by population size and the level of openness of partner countries.Additionally, Vietnam's participation in trade agreements has benefited its exports of woodenproducts, and shipping distance has been highlighted as a crucial factor in determining tradeintensity

b Impacts of EVFTA on wooden product export from Vietnam to the EU

i Opportunities

According to the research by Tu, P H., & Phuong, D T (2022), due to agreements to reducetariffs in major EU markets, joining the EVFTA will give Viet Nam's export goods acompetitive advantage, supporting export growth The EVFTA offers opportunities toincrease the export of Vietnamese advantaged goods including wooden furniture, and otheritems because it commits to removing import taxes up to nearly 100% of the tariff and tradevalue that the two sides have agreed

The research stated that Vietnamese exports of wood and wood products to the United Statestotaled $5.1 billion in 2019, an increase of 42% from the previous year As a result of signingthe EVFTA, it climbed to $7.1 billion in 2020, up 39.2% from 2019, and it now accounts for57.39% of all wood and wood-related exports from Vietnam

ii Challenges

Tu, P H., and Phuong, D T discovered in their research, which was published in 2022, thatVietnam had not fully benefited from the opportunities given by the implementation ofEVFTA to enhance the export of wood products to member countries Despite the fact that theEVFTA went into effect on August 1, 2020, many markets in this region have seen a decrease

in the export turnover of wood and wood products as a result of the numerous difficultiescaused by the challenging COVID-19 epidemic in the EU, record-high logistics and importmaterial costs, and a severe shortage of empty containers

The report also mentioned that the EU and Vietnam signed the Voluntary PartnershipAgreement on Forest Law Enforcement, Governance, and Trade as part of the EVFTA, andthat it went into effect in June 2019 As a result, Vietnamese companies must make sure thatall legal standards under the agreement are met when exporting raw materials to the EU Thelack of raw wood materials in the near future or even over the long term creates a seriousconcern for Vietnamese businesses if they do not take the initiative to produce a reliable andsustainable source of raw materials

2 Research Gap:

Although earlier study has helped us understand the factors that influence the export ofwooden product from Vietnam to the EU, there are still a number of knowledge gaps that callfor further research:

 Sector-specific Analysis: The majority of studies have concentrated on particular sectors like wooden furniture or the overall trade in wooden products The study ofother wooden product categories, such as plywood, timber, and wood-based panels, isnecessary For policymakers and industry stakeholders, analyzing the distinctivecharacteristics, demand patterns, and trade variables of each sub-sector would offeruseful insights

sub- Non-economic Measures: The majority of research has concentrated on analyzing theeffects of economic factors, such as the size of the economies and the level of tradebarriers But other elements, like the quality of the wood products and the accessibility

of trade finance, might also be important

 Comparative Analysis: It would be helpful to determine Vietnam's competitiveadvantages and disadvantages by conducting a comparative analysis with othercountries exporting wooden goods to the EU More important insights into theparticular variables affecting Vietnam's trade in wooden products with the EU can berealized by comparing trade patterns and determinants across countries This analysiswill be helpful in identifying potential improvement areas and competitiveness-boosting strategies for the EU market

 Panel data analysis: The majority of research has examined the factors influencingtrade at a single point in time using cross-sectional data, or panel data analysis.However, because trade flows are subject to change over time, it would be moreaccurate to use panel data that examines trade flows over a longer time frame

 Determinants of Trade between Particular EU Countries: Although most studies haveconcentrated on the factors that influence trade between Vietnam and the EU as awhole, it is important to take into account the factors that influence trade betweenVietnam and particular EU countries Studying trade variables at the country levelwould yield more insightful results because the EU is a group of nations with variouseconomic and political structures

3 Conclusion:

Policymakers and industry stakeholders can create effective strategies to improve trade inwooden products between Vietnam and the EU by filling in the research gaps mentionedabove through future study Future research's findings would also help the wooden productsindustry grow sustainably and promote improved trade relationships between Vietnam and theEU

III Theoretical Framework

1 Overview of the gravity model and its applications in international trade

The gravity model is an economic concept and a widely used empirical model in internationaltrade analysis It is based on the idea that the volume of trade between two countries isproportional to their economic sizes (measured by GDP) and inversely proportional to thedistance between them The gravity model takes its name from the analogy to Newton's law ofuniversal gravitation, where larger masses attract each other more strongly and the force ofattraction decreases with distance

The basic gravity model equation can be expressed as:

Tij = A * (Yi * Yj) / Dij

Tij represents the volume of trade between country i and country j

A is a constant term

Yi and Yj are the GDPs of countries i and j, respectively

Dij is the distance between countries i and j

The gravity model assumes that trade flows are influenced by the economic size of countriesand the costs associated with distance, which capture factors like transportation costs, culturalproximity, language, and trade barriers However, variations of the gravity model can alsoincorporate other factors such as common borders, regional integration agreements, and othereconomic variables

Applications of the gravity model in international trade analysis include:

 Trade flows analysis: The gravity model helps explain and predict bilateral trade flowsbetween countries by quantifying the impact of various factors, such as economic sizeand distance

 Trade policy analysis: The model provides a framework for assessing the effects oftrade policies, such as tariffs, quotas, or trade agreements, on trade patterns betweencountries

 Estimating trade potentials: The gravity model can be used to estimate the potentialvolume of trade between countries by considering their economic sizes and distances,providing insights into untapped trade opportunities

 Evaluating the impact of transportation infrastructure: The model can assess theeffects of improvements in transportation infrastructure, such as the construction ofhighways or ports, on trade volumes between countries

 Regional integration analysis: The gravity model helps evaluate the effects of regionalintegration agreements, such as free trade agreements or customs unions, on tradeflows among member countries

 Foreign direct investment (FDI) analysis: The gravity model can be adapted to analyzeFDI flows, taking into account factors like the size of the economies, distance, andother relevant variables

It's worth noting that while the gravity model is a useful tool for understanding and predictingtrade patterns, it has its limitations It assumes a linear relationship between the variables anddoesn't capture all the complexities of international trade, such as non-economic factors orcountry-specific characteristics Nonetheless, it remains a widely used and valuableframework for analyzing international trade relationships

2 Determinants of trade between Vietnam and the European countries.

 Wood export: Several studies have examined the import and export of wood and woodproducts globally For instance, Skog et al (1998) focused on wood fiber supply anddemand in the United States, determining that the country is a net importer of forestproducts with an expected increase in pulpwood and woodpulp imports Ince (2000)analyzed industrial wood productivity in the United States from 1900 to 1998,observing a 39% increase over that period, mainly attributed to the utilization of woodresidues and recycled wood fiber Haynes (2003) explored the timber situation in theUnited States from 1952 to 2050, predicting a 42% rise in forest product consumption

by 2050 In a gravity model, the determinant of wood export can refer to the factorsthat influence the flow of wood exports between countries These determinantstypically include economic, geographical, and policy-related factors

 GDP per capita: GDP per capita reflects a country's GDP divided by its population,indicating market size and economic scale Larger economies and higher incomelevels are associated with increased trade volume Tran et al (2020) studied China-ASEAN trade relations from 2000-2018, finding significant growth and highlightingChina's economic size as a key influencer This suggests that Vietnam's trade withcountries like Vietnam and the Euro countries will be affected by their economicscale In summary, GDP per capita is an important factor influencing Vietnam's tradewith other nations In a gravity model, the determinant of GDP per capita refers to thefactor that influences the flow of trade between countries based on their respectiveGDP per capita levels

 Trade openness: Trade openness has long been recognized as beneficial ininternational trade Hye, Wizarat, and Lau (2016) developed a trade openness index,finding a positive association with future and short-term economic growth However,due to data limitations, they used the Trade/GDP index as a substitute, which theyargue carries the same meaning and yields similar results In a gravity model, thedeterminant of trade openness refers to the degree of openness and liberalization oftrade policies between two countries Trade openness is a significant factor thatinfluences trade flows and is commonly included as a determinant in gravity models

 Distance: In trade literature, gravity models suggest that trade costs, often associatedwith distance, play a significant role in trade creation and diversion (Urata & Okabe,2010) These costs encompass various factors such as time, market penetration,cultural differences, personal preferences, and institutional disparities (Hoo andDoanh, 2015; Blum and Goldfarb, 2006) David Ricardo's theory of comparativeadvantage, the foundation of arguments for free trade, assumes zero transportation feesfor trading goods between countries However, this assumption does not hold in thereal world, especially for long distances where shipping costs are higher Additionally,perishable goods, such as fishery products, face greater risks of damage or loss withlonger transit times Hence, geographical distance can pose a barrier to internationaltrade In a gravity model, the determinant of distance refers to the geographicalseparation between two

trading partners Distance is a crucial factor that influences trade flows betweencountries and plays a significant role in shaping the gravity equation.

 Tariff: Various factors can influence the demand for goods, including lower tariffs andreduced trade barriers facilitated by Free Trade Agreement (FTA) agreements Thesefactors can decrease trading costs and potentially increase trade volume Nguyen(2014, 2016) used the gravity model to analyze changes in trade flows betweenVietnam and the EU The model's coefficient suggests that a 1% reduction in tariffsbetween the EU and Vietnam results in an increase in trade between the two by 0.52%

to 0.95% The article discusses Vietnam's reasons for boosting exports to the EU,highlighting trade policy improvements and access to advanced EU technology as keybenefits from the EVFTA However, Vietnam may face challenges such as a decline intariff revenues, increased competition in the domestic market, and reliance onexporting cheaper goods while importing more expensive ones from the EU Brauer et

al (2014) also underscore the drawbacks of the EVFTA, emphasizing the need forsignificant reforms in Vietnam's judicial system to fully realize the agreement'spotential In a gravity model, the determinant of tariffs refers to the trade barriersimposed in the form of import duties or taxes on goods and services Tariffs are acrucial factor that influences trade flows between countries and are commonlyincluded as a determinant in gravity models

 Revealed comparative advantage: The concept of revealed comparative advantage(RCA) is used to measure comparative advantages in trade policy The RCA index,originally proposed by Balassa in 1965, is commonly used to infer comparativeadvantages from trade flows and GDP data It compares a country's share of worldexports (or regional trade area exports) for different products to determine if it has acomparative advantage in a specific product If a country's share of exports for aproduct is higher than the share at the trade area level, it is considered to have acomparative advantage in that product However, there have been doubts about theaccuracy of the Balassa index as a measure of comparative advantages RCA is aconcept used in international trade analysis to assess a country's relative advantage inproducing and exporting specific goods or services compared to other countries It isoften employed in the context of the gravity model, which is a widely used empiricalmodel to explain bilateral trade flows between countries

to possess advanced technology, infrastructure, and education, enabling them to producehigher value-added and specialized goods that can be exported at higher prices

 H2: Increased trade openness boosts wooden product exports from Vietnam to EUcountries

The variable "Trade openness" refers to the degree of involvement or participation of acountry or economy in international trade activities with other nations It is quantified bycalculating the ratio of the combined value of exports and imports of a country to its GrossDomestic Product (GDP)

Increased trade openness boosts wooden product exports from Vietnam to EU countries.Trade openness refers to the reduction of trade barriers, such as import tariffs and quotas,between countries When trade barriers are reduced, it facilitates smoother trade flows andcreates more opportunities for exporting countries In the case of Vietnam, higher tradeopenness between Vietnam and EU countries can result in expanded market access andincreased export volumes of wooden products to the EU

 H3: Distance between Vietnam and EU countries negatively affects wooden productexport values

The distance between Vietnam and EU countries affects wooden product export values.Longer distances can present logistical challenges and increase transportation costs Thesefactors may influence the competitiveness of Vietnamese wooden products in the EU market.With higher transportation costs, the final prices of wooden products may rise, potentiallymaking them less attractive compared to products from closer or local sources Therefore, it ishypothesized that the value of wooden product exports from Vietnam to EU countries may belower when the distance between the two regions is greater

 H4: Tariffs on wooden product imports negatively impact Vietnam's exports to EUcountries

Tariffs on wooden product imports impact Vietnam's exports to EU countries Tariffs aretaxes or duties imposed on imported goods, which increase their cost and make them lesscompetitive in the importing country's market If EU countries impose higher tariffs onwooden products imported from Vietnam, it can raise the prices of Vietnamese woodenproducts, potentially reducing their demand and export values Thus, it is hypothesized thathigher tariff rates on wooden product imports can negatively impact the value of Vietnam'swooden product exports to EU countries

 H5: Vietnam's Relative Comparative Advantage (RCA) in wood export to EUcountries has a negative impact on its overall wood export performance

The hypothesis suggests that Vietnam's specialization in wood export to EU countries, asdetermined by its RCA, may have adverse effects on its overall wood export performance.RCA

measures a country's comparative advantage in a specific product or industry by comparing itsshare of global exports in that sector to its overall share of global exports If Vietnam's RCA

in wood export to EU countries is significantly higher than its overall RCA in wood export, itimplies a concentration of resources and efforts in serving the EU market

 H6: The dummy variable EVFTA has a positive impact on Vietnam’s wooden exportvalue to EU countries

The EVFTA (European Union-Vietnam Free Trade Agreement) is a bilateral trade agreementbetween the European Union (EU) and Vietnam It aims to promote trade and investmentbetween the two parties by reducing or eliminating trade barriers, including tariffs and non-tariff barriers

Based on this hypothesis, it is expected that the EVFTA has a positive impact on Vietnam'swooden product exports to EU countries Here's the rationale behind this hypothesis:

o Tariff Reduction: The EVFTA aims to eliminate or reduce tariffs on a widerange of products, including wooden products

o Market Access: The EVFTA improves market access for Vietnamese woodenproducts in EU countries It includes provisions that facilitate trade and reducenon-tariff barriers, such as streamlining customs procedures and addressingtechnical barriers to trade

o Investor Confidence: The EVFTA also includes provisions to enhanceinvestment cooperation between the EU and Vietnam This can attract foreigndirect investment (FDI) from EU countries into Vietnam's wooden productindustry, boosting export volume

o Economic Integration: The EVFTA promotes economic integration betweenthe EU and Vietnam, fostering closer economic ties and collaboration,contributing to enhancing the competitiveness and productivity of Vietnam'swooden product industry, thereby positively impacting exports to EUcountries

Based on these factors, it is hypothesized that the implementation of the EVFTA has apositive impact on Vietnam's wooden product exports to EU countries, leading to increasedtrade volumes and economic benefits for both parties

IV Methodology

1 Specification of the gravity model and its variables

The initial equation of the gravity model, which relates bilateral trade flows to economic sizeand distance, has evolved into a logarithmic form to enhance its suitability for econometricanalysis The logarithmic transformation serves several purposes:

helps linearize the relationship between these variables This linearization is

advantageous for econometric estimation methods, such as Ordinary Least Squares(OLS), which assume linearity between the variables.

interpretation of coefficients Taking the logarithm of the variables transforms thecoefficients into elasticities, representing the percentage change in trade associatedwith a one percent change in each independent variable

treating the exporter and importer symmetrically In the linear form, the equation mayhave different interpretations for the exporter and importer, whereas the logarithmicform ensures that the effects of variables are symmetrically applied

The logarithmic form of the gravity model equation typically appears as:

ln(Trade) = β₀ + β₁ln(GDP₁) + β₂ln(GDP₂) - β₃ln(Distance) + ε

Where:

Trade: Bilateral trade flow between countries

GDP₁, GDP₂: Economic size (GDP or GDP per capita) of the exporter and importer, respectively

Distance: Physical distance between countries

β₀, β₁, β₂, β₃: Coefficients to be estimated

ε: Error term accounting for unexplained factors and random variations

The logarithmic transformation allows econometric techniques to estimate the coefficientsand test the statistical significance of the variables in explaining bilateral trade flows

In addition to GDP per capita and distance, the research has expanded the gravity model byincluding variables such as Trade openness, Tariff rates, Revealed Comparative Advantage(RCA), and the effect of EVFTA These additional variables provide a more comprehensiveunderstanding of bilateral trade flows, considering factors such as trade liberalization, tradebarriers, sectoral advantages, and the specific dynamics of the wood export industry.Incorporating these variables enhances our analysis and sheds light on the determinants ofwood exports

2 Discussion of the estimation method and model diagnostics

The research will employ the Fixed Effects Model (FEM), Random Effects Model (REM),and Pooled Ordinary Least Squares (POLS) methods to estimate and develop acomprehensive model for the dependent variable, Wood export The authors will considervarious independent variables to capture the potential factors influencing wood exports Theseindependent variables include GDP per capita, Trade openness, Distance, Tariff, RevealedComparative Advantage

(RCA), and the effect of EU -Vietnam Free Trade Agreement (EVFTA) The study model proposed by the authors has the following equation:

ln(WEX) = β0 + β1 * ln(GDPPC) + β2 * ln(TROP) + β3 * ln(DIST) + β4 * ln(TAR) + β5 * ln(RCA) + EVFTA + ε

ln(TAR) represents the natural logarithm of the tariff rate imposed by the European countries

on wood exports from Vietnam

ln(RCA) represents the natural logarithm of the revealed comparative advantage of Vietnam

in wood exports to European countries

EVFTA is a binary dummy variable that takes the value of 1 if the European Union-Vietnam Free Trade Agreement is in effect and 0 otherwise

β0, β1, β2, β3, β4, β5, and β6 are the estimated coefficients of the model

The error term ε captures unobserved factors and random disturbances that affect woodexports but are not accounted for by the included variables

The regression model estimates the relationship between wood exports and various factorswhile controlling for the effects of GDP per capita, distance, trade openness, tariff, revealedcomparative advantage, and the presence of the EVFTA By utilizing the FEM, REM, andPOLS techniques, the research aims to uncover the relationships between these variables andwood export volumes This analysis will provide valuable insights into the determinants ofwood exports and contribute to a deeper understanding of international trade dynamics in theforestry sector

3 Results and Analysis

a Descriptive statistics of the variables and correlation analysis

i Summary statistics

Before evaluating the obtained data, we will provide a broad description of the model and its

parameters using STATA17's command sum This command displays the number of