Impacts of the Deep and Comprehensive Free Trade Area (DCFTA) between the European Union and Georgia on Georgia’s Foreign Trade

This diploma thesis evaluates the impacts of the Deep and Comprehensive Free Trade Area (DCFTA) between the European Union and Georgia on Georgia's foreign trade structure and dynamics over a symmetrical twenty-year period from 2004 to 2024. The research combines a descriptive assessment of Georgia's macroeconomic development and trade characteristics with advanced econometric modelling, specifically employing a structural gravity model estimated using the Poisson Pseudo-Maximum Likelihood (PPML) method. The empirical results demonstrate that the DCFTA did not have a statistically significant positive effect on Georgian exports to the EU. Strict European non-tariff barriers, such as sanitary and technical standards, impose high financial and administrative burdens on Georgian enterprises, keeping exports highly concentrated in low-technology and raw material commodities. Furthermore, the agreement did not cause a surge in imports from the EU, largely because Georgia had already unilaterally liberalized its tariffs in the early 2000s. Geographical distance remains a significant barrier to deep integration, leading Georgia to increasingly focus its trade on neighbouring regional markets driven by massive re-export activities. Ultimately, the thesis concludes that asymmetric tariff removal is insufficient for deep economic integration without robust domestic industrial policies, state support for technological modernization, and strict adherence to shared political and institutional commitments.