Commercial cooperation of Laos with countries in the Great Mekong subregion

Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.Commercial cooperation of Laos with countries in the Great Mekong subregion.

MINISTRY OF EDUCATION AND TRAINING

NATIONAL ECONOMICS UNIVERSITY

MINISTRY OF EDUCATION AND TRAINING

NATIONAL ECONOMICS UNIVERSITY

DECLARATION

I have read and understood the University’s policy on plagiarism I hereby declare on my honor that this PhD dissertation is my own work and does not violate the guidelines on good academic practices

PhD Candidate

SAYMANOLINH SINBANDHIT

TABLE OF CONTENTS

DECLARATION i

TABLE OF CONTENTS ii

ABBREVIATIONS v

LIST OF TABLE vi

LIST OF FIGURES vii

CHAPTER 1: INTRODUCTION 1

1.1 Rationale 1

1.2 Research objectives 3

1.2.1 General objectives 3

1.2.2 Specific objectives 3

1.3 Research scope 4

1.3.1 Research subjects 4

1.3.2 The research scope of the thesis 4

1.4 Research Methodology 4

1.4.1 Research Design 4

1.4.2 Data Collection 5

1.4.3 Ethical Considerations 5

1.5 Scientific contributions 5

1.5.1 Theoretical Contribution 5

1.5.2 Empirical Contribution 6

1.6 Structure of the thesis 6

CHAPTER 2: LITERATURE REVIEW ON COMMERCIAL COOPERATION BETWEEN DIFFERENT COUNTRIES 8

2.1 Conceptualisation 8

2.1.1 Concepts of trade and international trade 8

2.1.2 Concepts of commercial cooperation 10

2.2 Different perspectives of commercial cooperation 12

2.2.1 National level 12

2.2.2 Company level 15

2.3 Components of commercial cooperation among nations 17

2.3.1 Trade agreements 17

2.3.2 Foreign direct investment (FDI) 19

2.3.3 Technology transfer 21

2.3.4 Dispute resolution mechanisms 23

2.4 Theoretical frameworks of commercial cooperation among nations 24

2.4.1 Classical Trade Theories 24

2.4.2 Modern Trade Theories 27

2.4.3 International Political Economy Theories 30

2.5 Relevant studies on commercial cooperation between Laos and other countries 33

2.5.1 Studies on trade cooperation of Laos with countries in the Mekong sub-region 33

2.5.2 Studies on trade cooperation between Laos and countries in the Mekong sub-region 36

2.6 Research gaps 40

CHAPTER 3: RESEARCH METHODOLOGY 42

3.1 Research Design 42

3.1.1 Qualitative approach 43

3.1.2 Quantitative approach 46

3.2 Data Sources and Collection methods 48

3.2.1 Primary Data 48

3.2.2 Secondary Data 49

3.3 Data analysis 52

3.3.1 Qualitative Data Analysis 52

3.3.2 Quantitative Data Analysis 52

3.3.3 Triangulation 54

3.4 Ethical consideration 54

3.4.1 Informed Consent 54

3.4.2 Confidentiality and Anonymity 55

3.4.3 Accuracy and Honesty 55

3.4.4 Respect for Cultural Differences 55

3.4.5 Ethical Approval 55

CHAPTER 4: RESEARCH FINDINGS COMMERCIAL COOPERATION BETWEEN LAOS AND THE COUNTRIES OF THE GREATER MEKONG SUBREGION 57

4.1 The general context of region and local 57

4.2 Lao’s context 59

4.3 Factors affecting Laos' trade cooperation with the Mekong sub-region 61

4.3.1 Natural conditions and population of Laos 61

4.3.2 Politics, culture, society 63

4.3.3 National defence - security - foreign affairs 65

4.3.4 About Economies 66

4.4 Overview of economic and trade cooperation relations between Laos and sub-regional countries before 2015 68

4.4.1 Participation in Ayeyarwady - Chao Phraya - Mekong Economic Cooperation Strategy Organisation 68

4.4.2 Participate in the construction of the CLV development triangle area 71

4.4.3 Greater Mekong Subregion Program 72

4.4.4 The importance of economic corridors for Lao PDR 76

4.4.5 Laos projects by sector in GMS 80

4.5 General situation of commercial cooperation between Laos and GMS countries 85

4.5.1 Analysis of commerce data 85

4.5.2 In-depth interview analysis 92

4.6 Laos trade cooperation with some countries in the GMS region 94

4.6.1 Laos-Vietnam Trade Cooperation 94

4.6.2 Laos-Thailand trade cooperation 103

4.6.3 Laos-China trade cooperation 108

4.6.4 Laos – Cambodia trade cooperation 123

CHAPTER 5: RECOMMENDATION FOR LAOS TO STRENGTHEN COMMERCIAL COOPERATION WITH OTHER COUNTRIES IN THE GREATER MEKONG SUBREGION 137

5.1 The importance of Laos' commercial cooperation with the countries of the Mekong sub-region 137

5.2 Discussion of Laos' Participation in the Subregion (GMS) 140

5.2.1 Achievement 140

5.2.2 Challenges 144

5.3 Orientation of national economic development and trade cooperation of Laos 147

5.4 Some recommendations 150

LIST OF WORKS RELATED TO THE DISSERTATION THAT THE PHD CANDIDATE HAS PUBLISHED 153

REFERENCES 154

ABBREVIATIONS

ASEAN Association of Southeast Asian Nations

CLV Cambodia – Laos – Vietnam

FDI Foreign Direct Investment

GMS Greater Mekong Subregion

GDP Gross Domestic Product

UNCITRAL United Nations Commission on International Trade

Law SDG Sustainable Development Goal

MNC Multinational company

R&D Research and Development

NAFTA North American Free Trade Agreement

AFTA ASEAN Free Trade Area

CPTPP Comprehensive and Progressive Agreement for

Trans-Pacific Partnership IPR Intellectual property rights

WTO World Trade Organisation

DSU Dispute Settlement Understanding

OECD Organisation for Economic Cooperation and

Development

LIST OF TABLE

Table 4.1: Area, population and common border of Laos with sub-regional countries 62

Table 4.2: Laos' export turnover to GMS countries 86

Table 4.3: Structure of export commodities of Laos in 2021 89

Table 4.4: Main import/export markets of Vietnam and Laos, 2019 96

Table 4.5: Export and import turnover and trade balance of Vietnam - Laos 97

Table 4.6: Some major export/import products of Vietnam to/from Laos in 2020 97

Table 4.7: Imports of Laos, 2013 and 2017 107

Table 4.8: Exports of Laos, 2013 and 2017 107

LIST OF FIGURES

Figure 4.1: Pareto chart of Laos’s 2021 export turnover to world destinations 86

Figure 4.2: Laos' export turnover to GMS countries 87

Figure 4.3: Structure of export commodities of Laos in 2021 (in %) 90

Figure 4.4: Radar chart of Laos’s export turnover in GMS countries 91

CHAPTER 1: INTRODUCTION 1.1 Rationale

Cooperation for development is the current trend of the world, as well as the needs of countries No country wants to prosper in the context of globalisation and regionalisation but is "closed" Economies (regardless of level) must come into contact

to exchange, learn from experiences and support each other This is the most crucial relationship not only for less developed countries with limited foreign relations but also for developed countries, which have many global relationships In the literature, the positive correlation between trade agreements and economic growth appears as a consistent theme Frankel & Romer (1999) provides robust econometric evidence of trade's positive impact on a country's income

Nevertheless, Rodrik (2018) counter-argues that the benefits of trade liberalisation are not evenly distributed, which can exacerbate income inequalities One

of the most fascinating angles in literature is the association between commercial cooperation and peace Oneil (2009) proposes that countries with strong trade ties are less likely to engage in conflicts, a theory known as "capitalist peace" However, this claim is contested by Barbieri (2002), who indicates cases where commercial interdependence has led to conflicts Therefore, developing cooperative relations, especially economic and trade cooperation, between countries and international organisations has become a concern of all humanity and has become an inevitable trend

The Greater Mekong Subregion Cooperation (GMS) was established in 1992 as

an initiative of the Asian Development Bank (ADB) This trans-national region of Southeast Asia comprises six countries sharing the Mekong River: Cambodia, China (specifically Yunnan Province and Guangxi Zhuang Autonomous Region), Laos, Myanmar, Thailand, and Vietnam The region, home to approximately 326 million people as of 2020, is characterised by its significant biodiversity, cultural diversity, and rapid economic growth The GMS is geographically diverse, encompassing mountainous terrains, fertile floodplains, extensive forests, and numerous water bodies The region is named after the Mekong River, an international river that is the world's twelfth longest This river is central to the livelihoods of millions in the region and is critical for agriculture, particularly rice cultivation The GMS is one of the world's most biologically diverse regions, with several unique ecosystems It is home to many plant and animal species, including many that are endangered or endemic to the region However, this biodiversity is threatened by habitat loss, overexploitation, pollution, and climate change

The GMS is culturally and linguistically diverse, with hundreds of distinct ethnic groups and languages This rich cultural heritage is reflected in various aspects of life, including traditions, festivals, culinary practices, and art forms The GMS has witnessed rapid economic growth in recent decades, driven by foreign investment, tourism, and infrastructure development The GMS countries are increasingly economically and infrastructurally interconnected through various cross-border initiatives facilitated by the Asian Development Bank's GMS Program Key sectors include agriculture, manufacturing, and services, with the region's significant role in global supply chains However, economic disparities exist both between and within GMS countries While China and Thailand are relatively more developed, countries like Cambodia, Laos, and Myanmar remain less developed The GMS faces various challenges, including environmental degradation, climate change impacts, uneven economic development, and social issues such as human trafficking and migrant labour exploitation Efforts to address these challenges include regional cooperation initiatives, sustainable development programs, and policy reforms

Lao PDR is located in the centre of GMS, possessing rich natural resources, a large area, and a small population, but so far, the population is relatively poor Laos shares borders with all other GMS countries except Cambodia, making it a regional geographical hub Its central position gives Laos a significant role in regional connectivity and transportation initiatives Several major infrastructural projects, such

as highways and railways, pass through Laos, linking more developed GMS countries like Thailand and China Laos is an essential player in the region's economy, particularly

in sectors like agriculture and hydropower The country's largely unspoiled natural environments and rich biodiversity contribute to its role in sustainable tourism within the GMS Laos is also part of the GMS's "economic corridors" strategy, which aims to enhance economic cooperation and integration through improved transportation networks As of 2019, Laos still has a quarter of its population living in poverty and an estimated 80% live on less than $2.50 a day (United Nations, 2019) Recognising its position and role in the nation's revolutionary cause, the Lao government soon proposed many guidelines and measures for socio-economic development, aiming to bring Laos out of its status as an underdeveloped country by 2020 To do this, Laos needs a significant resource, along with strengthening cooperation with GMS countries to enhance trade promotion and investment measures, promote trade cooperation, enhance liberalization and facilitate intra-regional trade and investment Despite its significant role, Laos also faces several challenges, including limited economic development,

poverty, rural-urban disparities, and issues related to environmental conservation As part of the GMS, Laos has opportunities for growth and development through regional cooperation, infrastructure development, and sustainable use of its natural resources

Assessing the nature of trade cooperation between countries and its impact on economic growth, the ability of each economy to link into regional or international distribution and production supply chains seems to be not new Still, it has academic and practical value for researchers and development policymakers of countries, including researchers and policymakers of Laos

Economic and trade cooperation between Laos and other countries is still on the verge of stable and sustainable development and positive results However, there is no denying that some complex issues still hinder economic and trade cooperation between the two sides That is, Laos and other countries in the subregion have some differences not only in terms of political stagnation but also in terms of political differences and economy, diplomacy, and trade policy Therefore, promoting bilateral and multilateral trade development in a balanced and beneficial way for Laos and other countries in the

Mekong sub-region is a problem today That is why I chose “Commercial Cooperation

of Laos with countries in the Greater Mekong Subregion”, the period from forming

the ASEAN community in 2015 to the present study From this study, it is possible to

identify and more deeply assess the positive aspects and limit the issues being raised, thereby offering views, orientations and possible solutions to improve trade relations between Laos and countries in the Mekong sub-region in the coming time

1.2 Research objectives

1.2.1 General objectives

This research aims to evaluate and find recommendations to enhance Laos's commercial cooperation with neighbouring countries in the Greater Mekong Subregion area

Thirdly, actionable recommendations should be developed in key economic sectors to strengthen cooperation and build trade relations between Laos and the Mekong sub-countries

1.3.2 The research scope of the thesis

Regarding the content, Laos' trade cooperation with the Mekong sub-region includes a wide range of rich, flexible and varied forms However, the thesis focuses on only one area that is considered one of the most substantial growth engines of the Lao economy today: trade in goods In addition to studies on the role and status of the relationship, research topics include the growth of import-export turnover, market issues, trade barriers, and trade balance

In terms of time: from 2015 - 2022

Regarding space: Laos with countries in the Mekong subregion, including Vietnam, Thailand, Myanmar, Cambodia and the two Chinese provinces of Yunnan and Guangxi

1.4 Research Methodology

1.4.1 Research Design

This study will adopt a mixed-methods research design incorporating qualitative and quantitative approaches This design is chosen because it allows for a comprehensive examination of the commercial cooperation between Laos and other GMS countries, combining statistical analysis with in-depth understanding

1.4.2 Data Collection

Quantitative data will be collected from various sources, including trade statistics, economic reports, and other relevant databases from international organisations like the World Bank, Asian Development Bank, and United Nations Comtrade database This data will include information on trade flows, foreign direct investment, infrastructural development, and other economic indicators

Qualitative data will be collected through semi-structured interviews and document analysis Key informants for the interviews will include policymakers, business leaders, and experts in trade and regional cooperation in Laos and other GMS countries Documents for analysis will consist of policy documents, trade agreements, and official reports

1.4.3 Ethical Considerations

All research activities will adhere to ethical guidelines For the interviews, informed consent will be obtained from all participants, and their confidentiality will be preserved All sources will be cited appropriately for the document analysis to avoid plagiarism

1.5 Scientific contributions

1.5.1 Theoretical Contribution

The research can contribute to the theoretical understanding of regional commercial cooperation, economic integration, and sustainable development It could propose new theoretical models or enhance existing ones that explain commercial cooperation dynamics in the context of developing, landlocked countries like Laos within a region

It provides an opportunity to contribute new knowledge about how institutional and policy frameworks at bilateral and regional levels shape the nature and trajectories

of trade and investment partnerships between developing countries The research may also evaluate theories on small-state diplomacy and economic engagement strategies by studying Laos' approaches Additionally, the thesis could test theories related to trade creation and diversion and investment location patterns through analyses of cooperation impacts A significant theoretical contribution would be refining frameworks linking regional economic collaboration to development goals by exploring the effects of Laos-GMS cooperation The research may also build on value chain and industrial clustering theories by exploring linkages fostered across priority sectors Moreover, insights into

cooperation challenges and trust-building amongst heterogeneous developing countries can propose extensions to models of South-South dynamics Therefore, this thesis holds the potential to advance discourse through empirical analysis, offering context-specific foundations and developing country perspectives on economic theories of regional integration and cooperation

1.5.2 Empirical Contribution

Empirically, this research can contribute new data and findings about Laos' commercial relationships within the GMS It could provide novel insights into trade dynamics, foreign direct investment, infrastructure development, and other aspects of economic integration in the region

This thesis could make several potential empirical contributions It would provide new primary and secondary data through mixed methods on the nature and extent of commercial linkages between Laos and Greater Mekong Subregion partners over time Both qualitative and quantitative research would be employed to empirically measure outcomes of cooperation policies and agreements related to metrics such as trade volumes, investment projects, and job creation In-depth case studies of specific bilateral

or regional initiatives would offer nuanced, concrete insights beyond aggregate statistics Established concepts could also be applied to the Lao empirical context to test their applicability for developing countries Cooperation trends across sectors will be analysed to identify dominant and emerging industries Primary data collection through interviews and surveys with stakeholders would supplement secondary sources Statistical GDP, poverty, and competitiveness analyses could correlate economic integration and development impacts An original database cataloguing characteristics

of regional projects may also be compiled The research may provide sectoral or provincial cooperation profiles not currently available Overlooked factors, opportunities or limitations could be revealed based on mixed empirical evidence for policy guidance The thesis thus deepens understanding through novel empirical data and a contextualised case study approach

1.6 Structure of the thesis

The thesis consists of 5 chapters as follows:

Chapter 1 Introduction

Chapter 2 Literature review on commercial cooperation between different countries

Chapter 3 Research Methodology

Chapter 4 Research findings commercial cooperation between Laos and the countries of the Greater Mekong subregion

Chapter 5 Recommendation for Laos to strengthen commercial cooperation with other countries in the Greater Mekong Subregion

CHAPTER 2: LITERATURE REVIEW ON COMMERCIAL

COOPERATION BETWEEN DIFFERENT COUNTRIES

2.1 Conceptualisation

2.1.1 Concepts of trade and international trade

Trade/ commerce: is an economic category which is born and exists associated with the birth and existence of the commodity economy In a broad sense, commerce includes the business activities of individuals in the market to seek profit In a narrow sense, commerce is the process of buying, selling, and exchanging goods or services on the market is the process of distributing and circulating goods and services (Nguyen Thi Minh Huong, 2012; Thuong, 2016)

Historically, commerce evolved from the direct exchange of barter through precious metals such as gold to the use of money and cheques as a means of intermediary payment, separate between buyers and sellers Currently, e-commerce (a form of commerce) is an essential intermediary in promoting trading and payment activities in developed countries such as the United States and Japan For developing countries, traditional forms of trade are still relatively common

Initially, international trade was understood narrowly as the trading and exchange

of tangible goods between countries to bring about benefits that domestic trade and exchange activities do not have or are not equal to Along with the development of international economic relations, especially in recent decades, international trade is increasingly valued and understood in a broader sense, not only as a trade in tangible goods but also as a trade in goods It also includes the activities of buying, selling, exchanging intangible goods, services or investing for profit

According to the United Nations Commission on International Trade Law (UNCITRAL), international trade is understood broadly, including business activities in the global market, including commercial activities Moreover, global investment, from buying and selling tangible goods to services such as insurance, finance, credit, technology transfer, information, transportation, and tourism

According to Clause 1, Article 3 of the 2005 Vietnam Commercial Law, commercial activities are activities for profit-making purposes, including purchase and sale of goods, provision of services, investment, trade promotion and activities aimed at other profitable purposes Thus, international trade will also be understood broadly if approached according to this concept In that sense, international trade is commercial

activities with foreign elements (or trade activities beyond national borders or customs territories) that will include purchasing and selling goods, providing services, services between countries, international investment activities, international trade promotion and other profitable activities

Although there are many different concepts of international trade, it can be understood that international trade is the activity of buying and selling, exchanging goods and services, investment, trade promotion, and technology transfer Technology and other for-profit activities take place between countries or territories

There are many approaches to different types of international trade Previously, when talking about international trade, from the perspective of countries, people often divided into two flows of goods: export and import However, in modern trade conditions, new forms of international trade appear, such as export on the spot, temporary import for re-export, quick export for re-import, and especially trade in services Therefore, this classification of international trade is becoming less appropriate

Within the framework of this thesis, international trade is approached with two types: international trade in goods and services In the most general sense, goods are products of labour that can satisfy particular human needs Commodities are divided into tangible goods and intangible goods

International trade in goods includes international trade in tangible goods and intangible goods In particular, international trade in real goods consists of all activities related to visible and measurable goods, from machinery and equipment to agricultural products, food, raw materials, and natural materials International trade in intangible goods includes intangible goods such as inventions, inventions, utility solutions, industrial designs, copyrights, and trademarks

Export is bringing goods produced in the country to a foreign country for consumption Importing is bringing goods produced abroad into the country for consumption Local export activities may also be included in export activities Regarding regional exports, the goods may not yet cross national borders However, their economic significance is similar to that of exports—for example, the supply of goods to the diplomatic corps and international tourists

International outsourcing includes outsourcing to foreign countries (Vietnam currently uses this method for textile and footwear products) and outsourcing Today,

industrialised countries often hire developing countries to outsource their goods and pay them a processing fee)

Regarding re-export and transhipment, goods are temporarily imported from foreign markets and then exported to a third country, provided such goods are not processed or processed

In border-crossing activities, there is no act of buying and selling goods but performing services such as transit transportation and warehousing here

International trade in services: Services are increasingly important in the economy However, because services have many complex properties, there is no complete definition of service Even the General Agreement on Trade and Services under the WTO (GATS) has no concept of services

“In a broad sense, services are considered a third economic sector With this understanding, all economic activities outside the two sectors of agriculture and industry are considered in the service sector Another definition of a service is a service is an activity or benefit offered for exchange, which is essentially intangible and does not result in the transfer of ownership The performance of a service may or may not be associated with physical products” – (Cao et al., 2020)

Thus, it can be defined in the most general way: Services are activities that create products that do not exist in physical form and do not lead to the transfer of ownership rights to satisfy production needs promptly and people's daily lives

2.1.2 Concepts of commercial cooperation

Commercial cooperation is a broad concept that encompasses various forms of economic collaboration between entities such as businesses, industries, and countries Despite its widespread application, the idea remains diversely interpreted and understood within academic literature Research on commercial cooperation at the micro level, primarily between businesses, has been extensive Strategic alliances, joint ventures, and partnerships are common forms of commercial cooperation (Gulati, 1998) These alliances often aim to share knowledge, reduce risk, access new markets, or achieve economies of scale (Inkpen & Tsang, 2005) However, scholars like Das and Teng (2000) have highlighted the challenges of such cooperation, including cultural clashes, uneven contribution of resources, and conflicts of interest These studies suggest that while commercial cooperation can provide strategic advantages, its success depends on effective management and alignment of interests

Commercial cooperation often involves trade agreements, economic unions, or regional development initiatives in international relations Mansfield and Milner (1999) argued that cooperation can promote economic growth, peace, and stability However, other scholars have pointed out potential drawbacks For example, Bhagwati (2008) has criticised the proliferation of bilateral trade agreements, arguing that they can distort global trade and create a 'spaghetti bowl' effect Similarly, Rodrik (2011) has warned against the potential for economic cooperation to exacerbate inequalities or undermine national sovereignty Besides, commercial collaboration in international relations is often analysed through the lens of global political economy, international trade, and regional integration This extended review further examines the literature on these topics and their implications for commercial cooperation The field of global political economy provides a broad framework for understanding commercial collaboration This perspective emphasises the interplay between politics and economics in international relations (Frieden & Lake, 2000) It suggests that various political factors, such as power relations, national interests, and domestic politics, can influence commercial cooperation Frieden and Lake also argued that international institutions, such as the World Trade Organisation, play a critical role in facilitating commercial cooperation by providing rules and mechanisms for resolving trade disputes However, Krasner (1985) has pointed out that these institutions can also reflect and reinforce power inequalities between countries International trade literature provides insights into the benefits and challenges of commercial cooperation According to classic trade theories, such as comparative advantage (Ricardo, 1817), countries can gain from trading with each other

by specialising in what they produce best However, more recent theories, such as the new trade theory (Krugman, 1979), highlight that trade can lead to market concentration and increase disparities between countries These theories suggest that commercial cooperation must be carefully managed to balance trade benefits with potential drawbacks The literature on regional integration examines how countries in a particular region cooperate to achieve common economic goals Balassa (1961) proposed a five-stage model of economic integration, including a free trade area, customs union, common market, monetary union, and complete economic integration This model suggests a path regions could follow to deepen their commercial cooperation However, critics like Robson (1998) argue that this model is overly linear and does not adequately consider the complex and varied paths that regional integration can take Case studies

of commercial cooperation in different regions further enrich the literature For example, studies of the European Union (EU) highlight the benefits of deep integration, including

a single market and common currency However, they also highlight challenges like the

Eurozone crisis and Brexit (Hodson & Maher, 2014) Studies of other forms of commercial cooperation, such as China's Belt and Road Initiative and the African Continental Free Trade Area, offer additional perspectives These studies illustrate commercial cooperation's diverse forms and outcomes in different regional and global contexts

Commercial cooperation has been a key regional development strategy in the Greater Mekong Subregion (GMS) context, emphasising infrastructure connectivity, trade facilitation, and sustainable development (Asian Development Bank, 2020) However, studies like Baird and Quastel (2011) have raised concerns about the social and environmental impacts of such cooperation

2.2 Different perspectives of commercial cooperation

2.2.1 National level

As a multifaceted concept, commercial cooperation has been widely examined across various levels, including countries (macro level) and companies (micro level) At the country level, commercial cooperation often manifests as international trade agreements, economic unions, or regional development initiatives The theories of comparative advantage (Ricardo, 1817) and the Heckscher-Ohlin model (Ohlin, 1933) have provided a foundational understanding of why countries engage in trade and cooperation, highlighting the role of differing resources and production capabilities However, the increasingly complex global economic landscape has led to the emergence

of more nuanced perspectives As proposed by Krugman (1980), new trade theories emphasise the role of economies of scale and network effects These theories highlight that large markets can offer cost advantages, which can be accessed through commercial cooperation Critics, such as Rodrik (2011), argue that commercial cooperation can also exacerbate inequalities, erode national sovereignty, and lead to social and environmental disruptions These critiques underscore the need for commercial cooperation to be balanced with sustainable development and social equity considerations

At the country level, commercial cooperation often revolves around trade agreements, regional integration, and economic alliances The traditional theories of comparative advantage (Ricardo, 1817) and the Heckscher-Ohlin model (Ohlin, 1933) offer foundational insights into the economic logic of such cooperation New trade theories, such as Krugman's (1980) work on economies of scale and market size, have added nuance to our understanding They suggest that countries can benefit from cooperation by gaining access to larger markets, which enables cost savings and

supports industry growth However, some scholars, like Rodrik (2011), argue that commercial cooperation can contribute to economic and social inequalities Rodrik posits that the benefits of free trade and commercial cooperation are often unevenly distributed, leading to significant disparities between and within countries Moreover, the literature on regionalism and integration provides further insights Mansfield and Milner (1999) argue that regional integration can promote peace and stability, while Bhagwati (1991) warns about the potential for regional blocs to undermine multilateral trade systems

Commercial cooperation can be a critical strategy for developing countries to stimulate economic growth, enhance competitiveness, and address socioeconomic issues This review critically evaluates the potential benefits that developing countries may derive from commercial cooperation with other nations, drawing on critical theoretical perspectives and empirical research The primary benefit of commercial cooperation for developing countries is the potential to stimulate economic growth The traditional theory of comparative advantage (Ricardo, 1817) suggests that developing countries can increase their economic output and income by specialising in goods and services with lower opportunity costs and trading with other nations The economic growth argument is further supported by endogenous growth theory (Romer, 1986), which highlights the role of knowledge and technology transfer in economic development Commercial cooperation can enable developing countries to access advanced technologies and best practices from developed countries, stimulating productivity and innovation Commercial cooperation can also enhance market access and competitiveness According to Krugman's (1980) new trade theory, access to larger markets through trade agreements can enable economies of scale, reducing per-unit costs and enhancing competitiveness

Additionally, developing countries can diversify their economies, reducing dependence on a limited number of commodities and increasing resilience to economic shocks Beyond economic benefits, commercial cooperation can also contribute to socioeconomic development The United Nations' Sustainable Development Goals (SDGs) highlight the role of international trade and cooperation in addressing poverty, inequality, and sustainability issues (United Nations, 2015) Developing countries can attract foreign direct investment (FDI) through commercial cooperation, creating jobs, stimulating local entrepreneurship, and supporting infrastructure development While the potential benefits of commercial collaboration are significant, it is essential to approach them critically Stiglitz (2002) warns that free trade and FDI can exacerbate

income inequalities and lead to the exploitation of labour and natural resources in developing countries without adequate regulations and safeguards

Similarly, Rodrik (2011) argues that the benefits of commercial cooperation are not automatic and require sound domestic policies and institutions Moreover, the dependency theory (Prebisch, 1950) suggests that commercial collaboration can lead to

an unfavourable pattern of specialisation and a cycle of dependency on developed countries, limiting the long-term development prospects of developing nations While commercial cooperation can offer numerous benefits for developing countries, including economic growth, improved competitiveness, and socioeconomic development, these benefits must be balanced against potential risks and challenges It is critical for developing countries to negotiate commercial cooperation agreements that are fair and equitable and to implement domestic policies that can maximise the benefits and mitigate the potential drawbacks

Developing countries are often motivated to engage in commercial cooperation with other nations for various reasons, ranging from economic growth and diversification of economies to gaining political influence However, commercial cooperation's motivations and subsequent implications can be complex and multifaceted This review critically examines these motivations and their impacts One

of the primary motivations for developing countries to engage in commercial cooperation is the prospect of economic growth and development The theory of comparative advantage (Ricardo, 1817) posits that developing countries can increase their economic output and income through trade by specialising in producing goods and services in which they have a relative advantage

Moreover, endogenous growth theory (Romer, 1986) suggests that commercial cooperation can facilitate the transfer of technology and knowledge from developed countries, thus stimulating productivity and innovation in developing economies The diversification of economies is another crucial motivation Many developing countries depend on a few commodities for their export earnings Commercial cooperation can enable these countries to diversify their economies and reduce vulnerability to commodity price volatility and economic shocks (Prebisch, 1950) Commercial collaboration can also be motivated by political considerations Engaging in regional trade agreements or international organisations can enhance a country's political influence and foster regional stability (Mansfield and Milner, 1999) This can be particularly important for developing countries seeking to strengthen their geopolitical position or address regional conflicts While these motivations are compelling, they

should be critically examined First, the benefits of commercial cooperation may not be equitably distributed within a country Stiglitz (2002) argues that commercial cooperation can exacerbate income inequalities and lead to exploitation without adequate domestic policies and regulations Second, the dependency theory (Prebisch, 1950) suggests that commercial collaboration can create a cycle of dependency on developed countries, potentially inhibiting the development of domestic industries Lastly, the political motivation for commercial partnerships can also be double-edged While it can enhance a country's geopolitical position, it could also invite external influence or interference that may not align with its national interests (Baldwin, 2012) Developing countries are motivated to engage in commercial cooperation for economic, diversification, and political reasons However, these motivations come with complex implications, and the benefits of commercial cooperation are not automatic or uniformly distributed Therefore, it is essential for developing countries to approach commercial cooperation critically, considering both potential benefits and challenges

2.2.2 Company level

Commercial cooperation often involves strategic alliances, joint ventures, and collaborations in business Resource-based views (Barney, 1991) and transaction cost economics (Williamson, 1981) have influenced this field, suggesting that companies cooperate to access valuable resources and reduce transaction costs More recent perspectives, such as the knowledge-based view (Grant, 1996), emphasize the role of knowledge sharing and innovation in commercial cooperation These theories suggest companies can gain a competitive advantage by pooling and leveraging their collective knowledge However, the literature also points to the challenges of commercial cooperation at the company level Inkpen and Tsang (2005) highlight issues such as knowledge leakage, conflicts of interest, and cultural clashes These challenges suggest that successful commercial cooperation requires careful management and trust-building

At the company level, commercial cooperation often materializes as strategic alliances, joint ventures, mergers and acquisitions, and other forms of partnership The resource-based view (Barney, 1991) suggests that firms cooperate to access valuable resources and capabilities Transaction cost economics (Williamson, 1981) provides another perspective, arguing that firms collaborate to minimize the costs associated with market transactions This theory highlights the role of trust, contracts, and governance mechanisms in facilitating successful cooperation The knowledge-based view (Grant, 1996) and the network perspective (Gulati, 1998) add additional dimensions, emphasizing the importance of knowledge sharing and network relationships in

commercial cooperation However, these theories also point to potential challenges For instance, Das and Teng (2000) discuss the risks of alliances, including opportunistic behaviour, coordination difficulties, and the potential for knowledge leakage These insights suggest that managing alliances and cooperation is a complex task that requires careful planning and ongoing management

Multinational companies (MNCs) play pivotal roles in their home economies They contribute to economic growth, enhance competitiveness, and influence policy-making However, their role is subject to critical scrutiny due to tax evasion, inequality, and regulatory capture issues This review critically examines these roles and their implications MNCs contribute significantly to their home countries' gross domestic product (GDP) Their operations generate income, create jobs, and stimulate economic activities (Rugman and Verbeke, 2004)

Moreover, by investing in research and development (R&D), MNCs can spur innovation and contribute to long-term economic growth MNCs can enhance the competitiveness of their home economies They often operate at the forefront of technological advancements, investing in sophisticated technologies and human capital, which can spur productivity growth (Helpman, 2006) Moreover, through their global operations, MNCs can bring valuable market knowledge and international business experience, benefiting domestic firms and industries MNCs also play a significant role

in policy-making They can lobby for policies that promote economic openness, competitiveness, and innovation However, this role can be controversial, as MNCs may also influence policies to their advantage, potentially leading to regulatory capture (Stigler, 1971)

Despite the significant contributions of MNCs, their role in home economies should be critically examined First, MNCs can contribute to income inequality While they generate high-paying jobs, they often require high skills, potentially exacerbating wage inequality (Feenstra and Hanson, 1996) Moreover, MNCs can contribute to wealth inequality, as the returns from their global operations primarily accrue to their shareholders Second, MNCs are often criticized for tax evasion They can shift profits

to low-tax jurisdictions through sophisticated tax planning strategies, reducing their tax contributions to their home economies (Zucman, 2014) Third, the influence of MNCs

on policy-making can lead to regulatory capture, where regulations are designed to benefit them at the expense of the broader public interest (Stigler, 1971) While MNCs contribute significantly to the economies of their home countries, their role is complex

and comes with potential drawbacks Policy-makers must design policies that maximize the benefits of MNCs while mitigating potential challenges

2.3 Components of commercial cooperation among nations

Commercial cooperation among nations is a complex and multifaceted process

It involves various components, including trade agreements, foreign direct investment (FDI), technology transfer, and dispute resolution mechanisms While these components can stimulate economic growth and development, they have potential challenges and risks

2.3.1 Trade agreements

Trade agreements are a fundamental component of commercial cooperation They reduce or eliminate tariff and non-tariff barriers, facilitating the exchange of goods and services between countries (Krugman, Obstfeld, and Melitz, 2015) While trade agreements can stimulate economic growth and competitiveness, they can also lead to trade diversion and displacement of domestic industries (Bhagwati, 1991) Trade agreements are foundational to commercial cooperation They aim to reduce or eliminate trade barriers, facilitate the exchange of goods and services, and frequently involve provisions on intellectual property rights, labour standards, and environmental protection (Krugman, Obstfeld, and Melitz, 2015) However, the effectiveness and impact of trade agreements have been debated While they can stimulate economic growth and competitiveness, they can also lead to trade diversion and hurt domestic industries (Bhagwati, 1991) Baldwin and Venables (1995) argue that trade agreements can increase regional disparities, with benefits accruing to more competitive regions while less competitive regions face job losses and economic decline

Trade agreements are a cornerstone of commercial cooperation among nations, serving as contracts between countries to establish terms of trade and foster economic relations Trade agreements are designed to reduce or eliminate tariff and non-tariff barriers, facilitating the exchange of goods and services between countries According

to Krugman, Obstfeld, and Melitz (2015), trade liberalization through such agreements can lead to economic growth by enabling countries to exploit their comparative advantages and benefit from economies of scale However, trade agreements can also have adverse effects Bhagwati (1991) argues that preferential trade agreements can diverge trade, shifting from more efficient non-member countries to less efficient member countries In addition, Baldwin and Venables (1995) suggest that trade

agreements can exacerbate regional disparities, benefiting competitive regions while disadvantaging less competitive ones

From a political perspective, trade agreements can be tools for forging stronger diplomatic ties and maintaining geopolitical stability Mansfield and Milner (2012) contend that trade agreements can foster peace by creating interdependencies and promoting cooperation among nations They can also promote particular political or social objectives, such as human rights, labour standards, and environmental protection (Lechner, 2009) However, political factors can also complicate trade agreements According to Dür, Baccini, and Elsig (2014), powerful countries often have disproportionate influence in shaping the terms of trade agreements, which can lead to asymmetric benefits

Trade agreements can also have significant social impacts Rodrik (2018) argues that while trade agreements can increase overall national income, they can also lead to income inequality and job displacement, particularly in industries exposed to foreign competition In addition, trade agreements often include provisions on intellectual property rights that can affect access to medicines and knowledge (Sell, 2013) While these provisions can incentivize innovation, they can also raise prices and limit access, particularly in developing countries

The evidence for the positive impact of trade agreements on the economic growth

of the member countries is crystal clear For instance, implemented in 1994, NAFTA is

a trade agreement between the United States, Canada, and Mexico According to the Congressional Research Service (2017), NAFTA quadrupled trade between these countries from $297 billion in 1993 to over $1.3 trillion in 2017 It led to increased foreign direct investment and helped create many jobs by facilitating cross-border trade Besides, the EU is not just a political union but also a profound example of a trade agreement involving 27 countries (as of my knowledge cutoff in 2021) It helped to create a single market, leading to the free movement of goods, services, capital, and people The European Commission (2020) reports that intra-EU trade accounts for over 60% of each EU country's total trade, driving economic growth and job creation across the region

Additionally, established in 1992, AFTA aimed to stimulate economic growth among ASEAN member states by reducing intra-regional tariffs According to the ASEAN Secretariat (2020), intra-ASEAN trade increased from $91.2 billion in 1993 to

$579.4 billion in 2018, making ASEAN one of the most dynamic economic regions in the world Last but not least, the CPTPP, a trade agreement among 11 Pacific Rim

countries, is expected to yield substantial benefits A study by Petri and Plummer (2016) predicted that 2030 the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) could increase member countries' GDP by 0.5%-1.0% and global income by $147 billion Remember, while these trade agreements have had positive economic impacts, they may also have downsides The effects can vary significantly among different sectors within a country, and some groups may face challenges even as others reap benefits

Trade agreements play a crucial role in commercial cooperation among nations, with significant economic, political, and social implications While they can stimulate economic growth, foster diplomatic ties, and promote social objectives, they can also lead to trade diversion, regional disparities, income inequality, and restricted access to essential goods A comprehensive understanding of these complexities, informed by a critical literature review, is necessary for effective policy-making in international trade

2.3.2 Foreign direct investment (FDI)

FDI is another critical component Firms can access new markets, reduce costs, and navigate trade barriers by investing in other countries For host countries, FDI can stimulate economic growth, create jobs, and facilitate technology transfer (Blomström and Kokko, 1998) However, FDI can also lead to the exploitation of labour and natural resources, and it may not always result in technology transfer if local firms cannot absorb new technologies (Borensztein, De Gregorio, and Lee, 1998) FDI is a significant driver of economic globalisation and a crucial component of commercial cooperation

It enables firms to access new markets, reduce costs, and circumvent trade barriers (Blomström and Kokko, 1998) However, FDI's economic and social impacts are multifaceted While it can stimulate economic growth, create jobs, and facilitate technology transfer, it can also lead to the exploitation of labour and natural resources (Borensztein, De Gregorio, and Lee, 1998) Moreover, Meyer (2004) points out that FDI can increase income inequality by favouring skilled workers and distort domestic markets by crowding out local firms

Foreign Direct Investment (FDI) represents a significant aspect of international economic transactions, with substantial effects on the development trajectory of recipient countries FDI is a critical source of capital for developing countries Alfaro et

al (2004) posit that FDI can stimulate economic growth by providing much-needed financial resources for development Borensztein et al (1998) further argue that FDI contributes more significantly to economic growth than domestic investment due to the

package of technology, skills, and capital it brings FDI often involves transferring technology and knowledge from developed to developing countries According to Blomström and Kokko (1998), multinational enterprises (MNEs) introduce new technologies and practices in host countries, which can lead to productivity improvements and innovation This "spillover" effect can significantly enhance the technological capabilities of local firms, boosting their competitiveness FDI can create jobs in host countries, contributing to employment and income generation Farole and Winkler (2014) highlight that FDI can significantly reduce unemployment in developing countries, especially in labour-intensive industries

Moreover, FDI can contribute to skills development as local employees gain exposure to international business practices and advanced technologies (UNCTAD, 2012) Foreign investors often invest in infrastructure as part of their operations, which can lead to improved infrastructure in developing countries This investment can range from transport and energy infrastructure to building schools and hospitals, thereby contributing to the socio-economic development of the host countries (Moran, 2011) While FDI offers numerous benefits, it is not without challenges Some scholars caution that FDI can lead to increased income inequality, environmental degradation, and a potential erosion of national sovereignty (Gorg and Greenaway, 2004; Zarsky, 2007) While FDI can contribute significantly to economic growth and development, it can also have potential drawbacks These drawbacks can vary depending on the nature of the investment, the sector involved, and the specific characteristics of the host country FDI can potentially increase income inequality within a host country According to Figini and Görg (2011), FDI might lead to increased income inequality because the benefits of FDI often go to those who are already better off, such as skilled workers and capital owners Foreign firms might prefer employing skilled workers, increasing their wages relative to unskilled workers This could widen the wage gap and increase income inequality Besides, FDI can make host countries more dependent on foreign economies

If foreign investors own a significant portion of a country's economy, they might be more vulnerable to economic shocks in the investors' home countries This could lead

to financial instability in the host country (Görg et al., 2007) Multinational corporations often repatriate their profits to their home countries This means that while they make substantial profits from their operations in the host country, a significant portion may not remain there to stimulate local economic growth (UNCTAD, 2015)

There is a potential risk that large MNCs might exert undue influence over the domestic policies of host countries, particularly in countries where these corporations

make up a significant portion of the economy This could potentially erode national sovereignty and independence (Kobrin, 1987) FDI, particularly in extractive and heavy industries, can potentially lead to environmental degradation Some foreign firms might use weak ecological regulations in host countries to engage in environmentally destructive practices (Zarsky, 2007) While FDI can bring significant benefits, it also has potential drawbacks Policymakers must carefully manage FDI to maximize its benefits and minimize its potential disadvantages This could involve implementing policies to promote skill development, improve income distribution, strengthen environmental regulations, and ensure that a portion of the profits from FDI is reinvested

in the local economy

FDI plays a crucial role in the economic development of host countries by stimulating economic growth, transferring technology, creating employment, developing skills, and improving infrastructure However, managing FDI to maximize its benefits while minimizing its potential drawbacks is a complex task that requires careful policy design and implementation

2.3.3 Technology transfer

Technology transfer is a crucial aspect of commercial cooperation Through trade, FDI, joint ventures, and licensing agreements, advanced technologies can be transferred from developed to developing countries, stimulating productivity and innovation (Grossman and Helpman, 1991) However, technology transfer is not automatic and requires adequate human capital, infrastructure, and institutions in host countries (Cohen and Levinthal, 1990) Technology transfer plays a significant role in commercial cooperation Advanced technologies can be transferred from developed to developing countries, potentially stimulating productivity and innovation (Grossman and Helpman, 1991) However, technology transfer is not automatic and often requires adequate human capital, infrastructure, and institutional quality in receiving countries (Cohen and Levinthal, 1990) Lall (2000) adds that developing countries might continue

to rely on foreign technologies without proper mechanisms to build technological capabilities, limiting their long-term development prospects

Technology transfer between nations, often facilitated by multinational corporations (MNCs), can significantly enhance innovation and competitiveness in the recipient countries Borensztein, De Gregorio, and Lee (1998) found that FDI can convey advanced technologies from developed to developing countries, spurring economic growth They argued that FDI contributes more to growth than domestic

investment due to the package of technology, skills, and capital it brings Technology transfer plays a crucial role in economic growth and development Keller (2004) suggests that international technology diffusion contributes significantly to productivity growth in developing countries The study posits that technology diffusion can explain

up to half of long-term productivity growth among advanced economies Technology transfer can contribute to human capital development Local employees can acquire new skills and knowledge through exposure to new technologies, enhancing their productivity and income potential (Nelson and Phelps, 1966) Technology transfer can also play a critical role in promoting sustainable development For instance, transferring green technologies can help countries transition to a low-carbon economy and tackle climate change challenges (Dechezleprêtre, Martin, and Mohnen, 2017) While technology transfer can offer numerous benefits, it also presents several challenges Cohen and Levinthal (1989) argue that the ability to learn and apply foreign technology (termed "absorptive capacity") is crucial but not evenly distributed, leading to disparities

in the benefits of technology transfer Moreover, there can be concerns about intellectual property rights and potential adverse effects on local industries (Maskus, 2004)

Maximizing the benefits of technology transfer while minimizing potential drawbacks requires strategic planning and policy implementation As Cohen and Levinthal (1989) pointed out, the ability to absorb and apply foreign technology is crucial This involves investing in education and training to develop the necessary skills and knowledge Policymakers can also promote research and development (R&D) activities to foster a culture of innovation and learning Countries can strengthen their intellectual property rights (IPR) regimes to encourage technology transfer A robust IPR system can assure foreign investors and innovators that their technologies will be protected However, balancing innovators' rights is crucial without stifling local innovation or limiting technological access (Maskus, 2004) Fostering collaboration and partnerships between foreign and local firms can enhance technology transfer This could involve creating incentives for joint ventures or alliances or establishing platforms for knowledge exchange and collaboration (Blomström and Kokko, 1998) Policies should ensure that the benefits of technology transfer are widely distributed This could involve supporting small and medium enterprises (SMEs), promoting technology transfer in rural areas, or providing support for disadvantaged groups to access and benefit from new technologies Policymakers should encourage the transfer of environmentally friendly technologies This can help countries transition to a low-carbon economy and tackle climate change Policies could include tax incentives for

green technologies or regulations encouraging sustainable practices (Dechezleprêtre, Martin, and Mohnen, 2017) In conclusion, ensuring equitable and sustainable outcomes

in technology transfer requires a comprehensive approach that involves enhancing absorptive capacity, strengthening IPR regimes, promoting collaboration, implementing inclusive policies, and fostering sustainable technology transfer

International technology transfer is crucial in commercial cooperation between countries, enhancing innovation and competitiveness, promoting economic growth and development, developing human capital, and facilitating sustainable development However, it also poses challenges requiring careful policy interventions to ensure equitable and sustainable outcomes

2.3.4 Dispute resolution mechanisms

Dispute resolution mechanisms are integral to commercial cooperation They provide a framework for resolving trade disputes and enforcing trade rules, enhancing the predictability and stability of international trade (Horn, Mavroidis, and Nordström, 1999) However, these mechanisms can be complex and costly, potentially disadvantaging developing countries with limited resources and technical expertise (Shaffer, 2003) Dispute resolution mechanisms are integral to commercial cooperation They provide mechanisms to resolve trade disputes and enforce trade rules, promoting predictability and stability in international trade (Horn, Mavroidis, and Nordström, 1999) However, these mechanisms have been criticized for being complex and costly, potentially disadvantaging developing countries with limited resources and technical expertise (Shaffer, 2003) Moreover, Busch and Reinhardt (2003) argue that powerful countries often have the upper hand in these mechanisms, raising questions about their fairness and impartiality

Dispute resolution mechanisms are essential for facilitating smooth commercial cooperation In a study by Gilson, Sabel, and Scott (2009), the authors argue that such mechanisms can help manage uncertainty, prevent conflicts from escalating, and maintain relationships

Dispute-resolution mechanisms are commonly used in commercial cooperation, including negotiation, mediation, arbitration, and litigation Negotiation is usually the first step in resolving disputes Fisher, Ury, and Patton (2011) highlight that interest-based negotiation can be particularly effective when parties seek to understand each other's interests and find a mutually beneficial solution Mediation involves a neutral third party who facilitates dialogue between disputing parties Boulle (2005) noted that

mediation can be a flexible and cost-effective way to resolve disputes, and it can help preserve relationships, as it is less adversarial than litigation or arbitration Arbitration involves a neutral third party or parties (the arbitrators) who decide to resolve the dispute According to Lew, Mistelis, and Kröll (2003), arbitration is often used in international commercial disputes as it can provide a neutral forum, confidentiality, and

a binding decision that is enforceable internationally Litigation involves taking a dispute to court While litigation can provide a final resolution and establish legal precedent, it can be costly and time-consuming (Cardozo, 2013)

In international commercial cooperation, dispute resolution mechanisms take on additional importance due to differences in legal systems, cultures, and business practices The World Trade Organisation (WTO) has an established Dispute Settlement Understanding (DSU) that provides a structured process for resolving trade disputes between nations (Davey, 2005) Dispute resolution mechanisms are critical for commercial cooperation, helping to manage conflicts and maintain relationships Different mechanisms have their strengths and weaknesses, and the most appropriate approach depends on the nature of the dispute, the relationship between the parties, and the specific context

2.4 Theoretical frameworks of commercial cooperation among nations

Commercial cooperation among nations is a complex topic studied and theorized

by various scholars and economists Several theories underpin the understanding of commercial cooperation among nations These theories explain why nations trade with each other, the benefits of such cooperation, and the policies nations might adopt to regulate trade

2.4.1 Classical Trade Theories

2.4.1.1 Adam Smith's Absolute Advantage

Adam Smith's theory of Absolute Advantage suggests that a country should specialise in and export goods that it can produce more efficiently than other nations In exchange, it should import goods that different countries can have more efficiently (Smith, 1776)

Adam Smith's theory of Absolute Advantage is a fundamental pillar of classical economics and has significant implications for commercial cooperation among nations

In "The Wealth of Nations" (1776), Smith proposed that nations should specialise in producing goods that they can make more efficiently (with fewer resources) than other

nations and then engage in trade The theory of Absolute Advantage encourages nations

to identify their strengths and specialise in producing certain goods or services This specialisation boosts efficiency and productivity Countries can then engage in trade, exporting the goods they excel in producing and importing those they make less efficiently

Countries can use their resources better by specialising in goods with an absolute advantage and trading for others, leading to greater global efficiency This, in turn, encourages wealth creation as countries can produce and consume more than they could without trade Smith's theory inherently promotes commercial cooperation among nations By specialising and trading, nations become economically interdependent This interdependence can foster peaceful relations and cooperation as countries have a vested interest in each other's economic prosperity Smith's theory provides the foundation for free trade policies and agreements, which aim to remove trade barriers and thus allow countries to realize their absolute advantages It is often cited in arguments against protectionism and trade restrictions

Smith's theory enhances global economic efficiency by promoting specialisation based on absolute advantage When each country focuses on producing the goods it can make most efficiently, it maximizes the use of its resources, leading to a higher overall global output This means more goods and services can be produced and consumed globally than if each country attempted to make a broader range of goods less efficiently The theory encourages countries to trade with each other, fostering stronger economic ties This interconnectedness can improve diplomatic relations and increase cooperation

in other areas, such as environmental policy or security Countries with strong trade relationships are often more likely to cooperate on global issues and less likely to engage

in conflicts

Smith's theory indirectly stimulates nations to develop competitive advantages

By focusing on industries with an absolute advantage, countries can invest in research and development, infrastructure, and skills training to further improve their efficiency and output This can lead to innovation and new technologies, products, or services The principles of absolute advantage underpin many international trade policies and agreements, such as those advocated by the World Trade Organisation These policies aim to reduce trade barriers, such as tariffs and quotas, enabling countries to trade goods where they have an absolute advantage This leads to a more integrated global economy, where goods, services, and labour can move freely across borders

While Smith's theory of Absolute Advantage remains foundational in economics,

it is essential to acknowledge its limitations and how it has evolved The theory implicitly assumes that trade is a zero-sum game, where a country's gain is another's loss However, David Ricardo's theory of Comparative Advantage, which followed Smith's work, challenged this assumption by showing how countries can mutually benefit from trade even if one country is more efficient at producing all goods Moreover, modern trade theories, such as the New Trade Theory, add further complexity

by introducing factors such as economies of scale, product differentiation, and technological innovation These theories suggest that trade is not solely based on efficiency in production but also factors like consumer preferences and first-mover advantages in specific industries

Despite these advances, the theory of Absolute Advantage remains a crucial starting point for understanding international trade and commercial cooperation It provides a fundamental trade rationale and highlights the potential benefits of economic interdependence

2.4.1.2 David Ricardo's Comparative Advantage

David Ricardo extended Smith's theory, introducing the concept of Comparative Advantage He argued that nations should specialise in producing goods for which they have a lower opportunity cost, even if they do not have an absolute advantage in making them This specialisation and consequent trade can increase overall efficiency and wealth for all nations involved (Ricardo, 1817)

David Ricardo's theory of Comparative Advantage, introduced in his work

"Principles of Political Economy and Taxation" (1817), is a fundamental concept in international trade economics It extends Adam Smith's theory of Absolute Advantage

by suggesting that countries should specialise in producing and exporting goods where they have a relative, not absolute, efficiency

Ricardo's theory of Comparative Advantage suggests that even if a country is not the most efficient producer of any good (i.e., it does not have an absolute advantage), it can still benefit from trade This is because what matters is not the total production cost but the opportunity cost A country should produce goods for which it has the lowest opportunity cost compared to other goods This concept encourages more extensive trade, implying that all countries can benefit from trade, regardless of their absolute productive capabilities By promoting trade based on comparative advantage, countries can achieve a more efficient allocation of resources on a global scale This can increase

worldwide output and consumption possibilities, enhancing overall global welfare Countries can consume a combination of goods they could not produce without trade Like Smith's theory, Ricardo's Comparative Advantage theory fosters economic interdependence As countries specialise and trade based on their comparative advantages, they become reliant on each other for certain goods This interdependence can lead to increased cooperation, not only economically but also diplomatically and politically Ricardo's theory provides a strong argument against protectionism and for free trade It is often cited in forming trade policies and agreements that aim to reduce trade barriers, allowing for the free flow of goods and services across borders By doing

so, countries can fully exploit their comparative advantages

While Ricardo's theory of Comparative Advantage is a fundamental concept in international trade, it has limitations It assumes factors of production are perfectly mobile within a country but immobile between countries It also believes there are only two countries and two goods, simplifying global trade's complexity However, modern trade theories and empirical studies have refined Ricardo's theory The Heckscher-Ohlin theory, for instance, suggests that a country's comparative advantage arises from its factor endowments - a country will export goods that use its abundant factors intensively and import goods that use its scarce factors intensively In recent decades, new trade theories have introduced elements like economies of scale, differentiated products, and imperfect competition Paul Krugman's work, for example, shows that countries can gain a comparative advantage through economies of scale and network effects Despite the criticisms and extensions, Ricardo's theory of Comparative Advantage remains a crucial principle in understanding international trade and commercial cooperation It provides a compelling argument for trade to improve economic efficiency and promote mutual benefits among nations

2.4.2 Modern Trade Theories

2.4.2.1 Heckscher-Ohlin Theory

The Heckscher-Ohlin (H-O) Theory, introduced by Eli Heckscher and Bertil Ohlin, extends the concept of comparative advantage by explaining it through a country's factor endowments The theory suggests that countries will export goods that intensively use their abundant and cheap factors of production and import goods that use their scarce and expensive factors (Heckscher & Ohlin, 1933)

The H-O Theory encourages trade based on differences in factor endowments, such as land, labour, and capital Countries with an abundance of certain factors will

specialise in producing and exporting goods that require those factors Conversely, they will import goods that require factors they lack This principle encourages countries to identify their factors in abundance and scarcity, leading to more efficient specialisation and trade By promoting efficient allocation of resources based on factor endowments, the H-O Theory can lead to increased global output and consumption, enhancing global welfare It suggests that trade can help countries overcome their limitations in factor endowments and consume a combination of goods they could not produce in isolation The theory reinforces the idea of economic interdependence among nations As countries specialise and trade based on their factor endowments, they become reliant on each other for certain goods This interdependence can facilitate commercial, diplomatic, and political cooperation among nations

The H-O Theory provides a foundation for trade policies and agreements that reduce trade barriers It advocates for free trade, allowing countries to exploit their factor endowments fully The theory is often used to argue against protectionist measures that can prevent countries from realising their potential based on their factor abundance

Despite its significant contributions, the H-O Theory has limitations It assumes perfect competition and factor mobility within a country and disregards economies of scale and technological differences among countries It also believes that goods are produced with just two factors of production, labour and capital, simplifying the actual complexity of production processes Several extensions and refinements have been made to the H-O Theory The Stolper-Samuelson theorem, for instance, extends the theory by examining the effects of trade on factor prices It suggests that trade can lead

to a rise in the absolute return of a country's abundant factor and a decrease in the absolute return of its scarce factor More recent trade theories have introduced technological differences, economies of scale, and imperfect competition These theories suggest that a country's comparative advantage and trading patterns are not determined solely by its factor endowments but by other factors like technological capabilities, industry competition, and market structure

Despite these advancements, the Heckscher-Ohlin Theory remains a central principle in understanding international trade and commercial cooperation It provides valuable insights into how differences in factor endowments among countries can shape trade patterns and interdependencies

2.4.2.2 New Trade Theory

The New Trade Theory (NTT), developed primarily by economists Paul Krugman and Elhanan Helpman in the late 20th century, introduces factors such as

economies of scale, product differentiation, and imperfect competition to studying international trade It departs from classical trade theories, which assume perfect competition and constant returns to scale, by suggesting that trade can be driven by increasing returns to scale and consumers' preference for variety (Krugman, 1979)

NTT suggests that countries can benefit from trade due to economies of scale, which occur when an increase in the scale of production leads to a decrease in the average cost of production This concept encourages countries to specialise in specific industries that can produce on a large scale and reduce costs By trading, countries can serve a more prominent market than their domestic one, benefiting from economies of scale NTT acknowledges that firms within an industry can differentiate their products and that consumers value this diversity Countries can gain a competitive edge through lower production costs, innovation and technological advancement This recognition can encourage greater cooperation in research and development, intellectual property rights, and technology transfers

Contrary to classical theories, NTT suggests that trade can be beneficial even among countries with similar factor endowments and technology It explains why countries often engage in intra-industry trade, importing and exporting similar goods This understanding can promote commercial cooperation between countries that might have otherwise overlooked trade opportunities due to perceived similarities NTT has implications for trade policies and agreements It suggests that governments may support industries that can benefit from economies of scale until they can compete in the global market This perspective has been used to justify certain trade practices, such

as providing subsidies or implementing strategic trade policies to support 'infant industries'

While NTT offers valuable insights, it has been criticised for its assumptions, such as perfect information and the absence of transportation costs It also does not fully explain why some countries develop specific industries while others do not Extensions

of NTT include the New New Trade Theory, which incorporates firms' heterogeneity and the role of luck and chance in determining which firms become exporters This theory, developed by economists like Marc Melitz, suggests that trade can increase industry productivity by reallocating resources towards the most productive firms Despite its limitations and the development of newer models, the New Trade Theory remains pivotal in studying international trade It provides a more nuanced understanding of global trade patterns and offers valuable insights into commercial cooperation in the modern, globalised economy

2.4.3 International Political Economy Theories

2.4.3.1 Liberalism

Liberalism, as a theory of international relations, posits that states can mutually benefit from international cooperation, particularly in the economic sphere The theory emphasizes the importance of international institutions, the rule of law, and interdependent economic relations in promoting global peace and cooperation (Frieden

& Lake, 2000)

Liberalism promotes the idea of free trade, seeing it as mutually beneficial for the countries involved It advocates for the removal of trade barriers and the establishment of international free trade agreements By creating a more open and competitive global market, liberalism encourages countries to specialise in their comparative advantages, leading to greater efficiency and wealth generation Liberalism places significant importance on international institutions like the World Trade Organisation (WTO) in maintaining a stable and predictable trading system These institutions are crucial in resolving trade disputes, setting trade rules, and promoting cooperation among nations The liberal theory posits that economic interdependence among states reduces the likelihood of conflict and fosters cooperation As countries become more reliant on each other for trade, conflict costs increase, creating a mutual interest in maintaining peaceful relations Liberalism also argues that democratic nations with the rule of law are less likely to engage in military conflicts and more likely to cooperate economically The theory suggests that democracies are more transparent, reliable, and predictable in their international interactions, making them attractive partners for commercial cooperation

Critics of liberalism often point out that while the theory advocates for equality and mutual benefit, the reality of international trade can lead to power imbalances and inequality Some countries, particularly those with strong economies, could exert influence over others, leading to less-than-fair trade agreements Moreover, liberalism's focus on economic interdependence and cooperation can overlook other factors leading

to conflict, such as nationalism, cultural clashes, or historical grievances Despite these criticisms, extensions to the theory have attempted to address these issues For example, the theory of "embedded liberalism" suggests a balance between free trade and domestic welfare, arguing that governments should be able to protect their economies and citizens while maintaining a commitment to open trade Liberalism provides a robust theoretical groundwork for understanding and promoting

commercial cooperation Its emphasis on free trade, international institutions, economic interdependence, and democratic governance offers a framework for fostering peaceful and productive relations among countries

2.4.3.2 Mercantilism (Economic Nationalism)

Mercantilism, called Economic Nationalism, is an economic theory and practice that dominated Western European economic policies from the 16th to the 18th century Mercantilism advocates for a positive balance of trade, high tariffs on imported goods, and the belief that national wealth and power are synonymous with the accumulation of precious metals (Ekelund & Tollison, 1981)

Mercantilism posits that economic policy primarily aims to strengthen the state Commercial cooperation is seen as a tool to advance national interests in this scheme Countries would engage in trade agreements or partnerships expected to result

nation-in a positive trade balance and contribute to the accumulation of national wealth Under mercantilism, governments play a central role in shaping trade policies to protect domestic industries and promote exports This might involve tariffs, import quotas, subsidies, or other forms of protectionism Although these practices might hinder international free trade, they can also lead to cooperation among nations in specific sectors where mutual benefits are identifiable Mercantilism encourages nations to identify and develop industries with a competitive advantage By focusing on these industries, nations can increase their exports and reduce their import dependence This process could foster commercial cooperation as nations seek to access resources, technology, or markets that help enhance their competitive advantage

Mercantilism has been widely criticized for its zero-sum view of international trade, where one nation's gain is seen as another's loss This view contrasts with modern economic theories, such as those of Adam Smith and David Ricardo, which suggest that trade can be mutually beneficial Moreover, mercantilism's emphasis on protectionism can lead to trade wars and conflicts High tariffs and trade barriers can provoke retaliatory actions, disrupting international trade and cooperation Despite these criticisms, elements of mercantilism continue to influence contemporary economic policies For instance, the concept of strategic trade policy, which involves government actions to boost the international competitiveness of specific industries, reflects mercantilist ideas Also, during times of economic crisis or uncertainty, countries may revert to more protectionist measures to safeguard their economies