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Some recent academic papers on mercantilism
Jesse Richman, 11/2/2012

A number of intriguing academic papers have appeared on mercantilism in 2012.  I summarize a few below.

Chinese economist Heng-fu Zou and coauthor Gaowang Wang presented a working paper on the relationship between mercantilism and global economic growth.  They integrate Zou's 1994 dynamic analysis of the Viner model of mercantilism with Obstfeld model.  The results are potentially quite important, and they point to the importance of including mercantilism in analysis of differential global economic outcomes.  

Zou and Wang show that higher levels of mercantilism increases demand for risky assets, and tends to harm overall global growth, but the economic effects of mercantilism on growth vary across countries.  Higher levels of mercantilism benefit some countries.  The paper can be downloaded at http://down.aefweb.net/WorkingPapers/w548.pdf, though the reader is warned that (a) it still needs some copy-editing for English syntax, and (b) the math does not make for light reading.

Wang Hui, another Chinese scholar published a paper (http://en.cnki.com.cn/Article_en/CJFDTOTAL-GHLJ201203021.htm) arguing that post-financial crisis shifts in world economic policy require China to shift to a more balanced and less export-driven economic model. 

JIA Gen-liang YANG published a paper arguing that U.S. quasi-mercantilist policies in the 19th century were an important inspiration for China's more recent policies, with a case study of U.S. iron and steel development. http://en.cnki.com.cn/Article_en/CJFDTOTAL-JJLL201201013.htm

In the book "U.S.-China Trade Dispute: Facts, Figures and Myths" By Imad Moosa Richman, Richman and Richman (2008) is cited.  The overall argument though is one that this Richman at least would not fully endorse: that the United States is being hypocritical in advocating free trade when in the past it engaged in a range of protectionist policies. 

http://books.google.com/books?hl=en&lr=&id=a9qCSQWx43cC&oi=fnd&pg=PR1&dq=mercantilism+china&ots=MhOuf-dQw7&sig=eUTypf8XkptW938gxkbdmJ1SWrw#v=onepage&q=mercantilism%20china&f=false

A paper by Samba MBAYE analyzes the effects of currency manipulation on trade balances and finds that currency manipulation increases the manipulator's trade surplus, and increases the trade deficits of trading partners.  http://www.etsg.org/ETSG2012/Programme/Papers/465.pdf

J. Lee and J. Aizenman argue in "The Real Exchange Rate, Mercantilism and the Learning by Doing Externality,"  Pacific Economic Review, 2010, 15:3, pp. 324-335.  Learning by doing provides an incentive for either currency manipulation or subsidy of capital in the traded sector. 
Overall, these articles converge around several important arguments.  1. At times mercantilist policies can provide positive benefits for the mercantilist country (though benefits for the broader world economy are more doubtful). 2. Mercantilist countries that believe they are receiving substantial positive benefits from their policies are unlikely to respond readily to pious appeals for free trade based on economic orthodoxy.  There are many economists (though not many in the U.S.) who argue that mercantilism can be an effective economic  strategy.  

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Comment by Howard Richman, 11/3/2012:

I wonder if these papers address the three important effects of mercantilism upon global growth:

1. Reciprocal Effects. Mercantilism has the equal and opposite effect upon its victims that it has upon its perpetrators. The perpetrator gets reduced consumption in the short run followed by increased consumption and power in the long run. The victim gets increased consumption in the short run followed by reduced consumption and power in the long run.

2. Less Technological Growth. Chinese mercantilism reduces the incentive to research new innovations. For example, why should GM, Fiat, and Caterpillar research innovations that they know that they will be forced to give them away to their Chinese competitors in order to have access to China's growing market?

3. Destroys World Trading System. By destroying the economies in the trade deficit countries, the mercantilist countries eventually destroy the markets for their own exports. The 2008 global crash and the EU's current troubles are both examples of this.




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