Mercantilism, Development Strategy And Long-Run Growth

As an important economic thought, from its emergence to today, mercantilism has greatly affected and changed the world theoretically and practically. Theoretically, except for the numerous researchers on theory and policy-making, several most important economists in the history have done some research on mercantilism including Adam Smith, John Keynes, Joseph Schumpter, and Paul Samuelson etc.; practically, in the world economic history after the emergence of mercantilism in sixteenth century, mercantilism was dominating beyond one half of the five hundred years. The theoretical researches in the dissertation try to put forword a theoretical support to mercantilism, and give suggestions on how to develop it.Based on the reviews of its developmental history and related theoretical literature, by taking it as a developmental theory of nations under open economies, the dissertation tries to do some research on mercantilism, constructs four mathematical models and examines the relationships among mercantilism, capital accumulation, economic growth, social welfare and the exchange rate in the different frameworks of small open economies, large open economies and financial globalization. In a small open economy without money, chapter4examines the intrinsic relationship among the development of mercantilism, foreign asset accumulation and optimal social welfare. The chapter presents the necessary and sufficient condition for the saddle-point convergence of the mercantilist economy, namely, the concavity of the utility on assets must be larger than or equal to the concavity of the utility on consumption, and the ratio between these two terms in the equilibrium has a constant low bound determined by the exogenously given interest rate and the time preference rate. It is shown that in the long run the country with the stronger development of mercantilism has higher levels of domestic and foreign consumption, asset accumulation and optimal social welfare; the increase of the import tariff will improve the levels of total consumption and foreign asset accumulation, though it decreases the optimal social welfare; furthermore, the existence of the H-L-M effect guarantees, namely, the deteriation of terms of trade will decrease the level of foreign asset accumulation and increase the deficits of the current account. Then, by introducing money and foreign currency into the model of chapter four, the model of chapter five reinvestigates the effectiveness of all kinds of macroeconomic policies. Similar to chapter four, the chapter presents the sufficient condition for the convergence of the mercantilist monetary economy firstly. And then we discuss the effectiveness of all sorts of macroeconomic policies. It is shown that, except for the negative effect of the addition of government expenditure, all other intervening tools, including the increase of the consumption tax, the moneatary growth rate, the development of mercantilism and the holdings of foreign exchange of the government, improve the long-run levels of consumption and foreign asset accumulation. The chapter provides a theoretical foundation for the effectiveness of all sorts of intervening policies in the mercantilist economy. In chapter6, the dissertation extends the research to the stochastic framework with heterogeneous preferences and global financial openness, and investigates the intrinstic relationships between the development of mercantilism and the long-run economic growth and especially examines how the technological shocks and the economic integration affect economic growth. The conclusions embody two aspects. On the one hand, facing to the same technological shocks, different countries appear different effects of growth because of different scopes of values of the preference parameters. On the other hand, economic openness has different growth effects for different countries. After the economic integration, some countries grow more rapidly, others grow more slowly. These depend on the parameter values of the different countries. Therefore, the economic models of mercantilism supply a new framework to explain the difference of economic growth among different countries. In chapter seven, the dissertation extends the research to the framework of large economies, in which we can examine the complex dynamics of the determination of exchange rate. It is shown that many factors including monetary shocks, consumption fluctuations and the holding shocks of foreign exchange determine the complex equilibrium dynamics of the short-run exchange rate simultaneously.