This paper analyzes the determinants of service trade flows between Vietnam and the European Union. In this respect, a gravity model has been estimated with panel data and pooled, random and fixed effect estimation, covering the period of ten years from 2002 to 2011, for total service trade flows, service exports, and service imports between Vietnam and the European Union separately. | VNU Journal of Science: Economics and Business, Vol. 30, No. 5E (2014) 51-64 Analyzing the Determinants of Service Trade Flows Between Vietnam and the European Union: A Gravity Model Approach Phạm Văn Nhớ, Vũ Thanh Hương* VNU University of Economics and Business, 144 Xuân Thủy Str., Cầu Giấy Dist., Hanoi, Vietnam Received 17 November 2014 Revised 25 November 2014; Accepted 25 December 2014 Abstract: This paper analyzes the determinants of service trade flows between Vietnam and the European Union. In this respect, a gravity model has been estimated with panel data and pooled, random and fixed effect estimation, covering the period of ten years from 2002 to 2011, for total service trade flows, service exports, and service imports between Vietnam and the European Union separately. The estimated results indicate that the service trade flows between Vietnam and its European partner countries are determined by the GDP per capita gap between Vietnam and EU countries, the population of EU countries, the real effective exchange rates, colonial relationship and being former members of the Council of Mutual Economic Assistance. Keywords: Gravity model, service trade, Vietnam, EU. 1. Introduction* Vietnamese government has also implemented comprehensive policies to accelerate the development of high-value-added services. In Vietnam, the service industry has played an important role in the socio-economic development of the country, and has contributed significantly to its economic growth. Since 2005, the growth of Vietnam’s service sector has exceeded total GDP growth. In 2013, the service sector of Vietnam grew by , accounting for of the country’s GDP, and created employment for million persons [1]. From the perspective of the government of Vietnam, the service industry is a vital part of Vietnam’s strategy to become a modern economy by 2020. Therefore, the service sector is targeted to grow by per year and account for 42-43% of Vietnam’s GDP during
