International trade operations - Essay Example

Since 2000 however, although the revenues from exports to EU have increased, its share has decreased with respect to total exports. With respect to the other industries such as cement and manufacturing, the theory is not applied. Therefore, the theory has been able to account for trade patterns with the EU-15 countries until 2000 with respect to the timber industry. The Heckscher – Ohlin theorem explains a country’s production characteristic by taking into account the various factors of labour, land and capital.

A country is hypothesized to abundantly produce and export those types of goods that conform to its strengths, being either capital intensive or labour intensive. Moreover, similar to the theory of comparative advantage, the country need not necessarily have a particular resource in abundance; it only needs to be abundant with respect to the other resources. After taking into account, the various features of the country’s economy and resources, the writer applies the theory to the timber industry.

Latvia’s high land ratio relative the population is used to explain the high percentage of timber exports as being a land – intensive product. Therefore, it seems to be quite satisfactory. However, when the case of countries such as Sweden and Finland is considered, the theory fails since they have lower population densities than Latvia. Once again, this theory is also not applied to other industries. In addition, both the theories deal with comparative advantage but do not have an account of changing comparative advantage of a nation or the future direction of the economy of a nation with respect to its strengths. 2) While both of the theories are able to explain some of the patterns of trade in a certain time period applied to a single industry, it might be argued that any theory of international trade will be able to do this (Zhang, 2008, p.71). The requirement of a theory is that it must be able to account for a majority of the factors that influence an economy.

Its success is therefore determined by its proximity and applicability to practical situations that are very complex rather than explaining simple models. Hence, the theories can be considered as guiding principles upon which more complex theories of international trade are built upon. At the same time, it is not possible for a theory to account for all of the changes over a long period of time and must be constantly updated. The theories have provided a starting point for development of more inclusive models.

An important trait of a theory is that it is able to simplify the various factors that it deals with. For this purpose and for academic analysis, complex practical situations are often isolated and studied independently of the other. However, the application of the traditional theories of comparative advantage and that of the Hecksher – Ohlin model has proved that they have been successful only in certain conditions. As economies around the world and the factors influencing them have become numerous and more complex, a need for a more effective theory(s) that incorporates many of these factors has grown.

Therefore, the writer has been ambitious in concluding that the theories have been able to corroborate findings with respect to the Latvian economy and its trade partners. However, the article provides a considerable amount of information that is useful to the Latvian