Latvian Potential in the Trade with the EU Countries

Abstract

Abstract The importance of international trade for the economic development of any country, on the one hand, and the decreasing rates of goods turnover within the EU countries in recent years, on the other hand, reveal the relevance of the research on the assessment of Latvia’s trade potential with the EU countries. The aim of this study is to measure and assess Latvia’s export potential with the European Union countries based on the gravity model. Since the development of trade relations is influenced by various factors, the article provides an overview of empirical studies that analyse various factors determining the level of trade among the countries. Possible volume of exports from Latvia to the EU countries was calculated on the basis of gravity model; calculations were conditioned by several factors included in the model, such as GDP, geographical distance and the degree of country’s economic freedom. The article also provides an assessment of Latvia’s export potential realisation extent. The method described in this article allowed applying the gravity model for the assessment of cooperation between Latvia and the EU countries, and was suitable for the quantitative evaluation of the extent to which export potential was realised in other countries