The aim of the paper is to analyze relationship between international trade and the correlation of the business cycles between Baltic countries and their main trading partners. Two univariate methods are used to extract cyclical components in the time series: exponential smoothing procedure the Hodrick-Prescott filter and unobserved components method. A simple regression model proves the hypothesis that trade intensity has led to business cycle synchronization. The main conclusion is that there exists a strong correlation between the business cycles of the Baltic countries. However, the economic cycle of Baltic countries is different from that of their main trading partners in EU. According to Optimum Currency Area theory, these results cast doubts on the usefulness of adopting the euro in the Baltic countries in the near future. On the other hand, recently the deepening of economic integration has led to make intense trade between the Baltic countries and the EU, which may eventually imply more synchronised cycles in the future.

Recently economic development has been an issue of intense research and discussion in an academic society. Many facets of countries’ economic development were examined, including foreign trade. As a foundation of international cooperation, this indicator is relevant in observing one’s internal development and external ties. In case of Latvia, this topic is heavily influenced by economists, and the geographical perspective is quite underdeveloped. In this research, the economic ties of Latvia were explored through the analysis of its main export groups in sectors of agriculture, forestry and fisheries throughout the first decade of the 21st century. With the aim of establishing clear ties between Latvia and its major export markets, the statistics of foreign trade was analysed using frequency analysis. It can be reported that in general Latvian export markets are closely located and consist of the Baltic Sea Region countries such as Denmark, Germany, Russia and others. Despite the differences in commodity group destinations, it can be clearly stated that a division of trade flow still exists, separating it into two directions - Eastern and Western, where the former allocates the majority of Latvian processed commodities and more sophisticated goods, and the latter consumes raw materials and less transformed materials. This arguably shows a difference in demand in Western and Eastern markets, where the first mostly requires materials for its own industry, while the latter procures them for consumption on the local market, again pointing to a complexity of reforms required for the Latvian economic focus turning towards Western markets.