THE NEW MERCANTILIST

•CHINA AND GERMANY- 2 MOST SUCCESSFUL CONTRIES.

•REASONS:-
- RAPID RECOVERY FROM THE GLOBAL CRISIS.
- CONTINUING HIGH OUTPUT GROWTH RATE.
MAIN REASON WAS POSITIVE NET EXPORTS.
 MERCANTILIST THEORY
• Belief that the economy having exports>imports is wealthier .
• This led to increase in exports suppressing imports.
FLAWS OF THIS THEORY
• Confusion of bullion with real economic asset.
• Failure to perceive that purpose of increase in net exports is
the increase in net imports.
Therefore, neo mercantilist theory was developed.

Mercantilism and export led growth are different.

 IS IT AN ATTRACTIVE
STRATEGY?
• This has lead to suppression of domestic wages and
consumption.
• Exports involve more productive jobs at home at the expense
of jobs in trade partner’s country.

But, it cannot be followed by all economies.

 RESULT OF THIS
• Decrease in the prices of products and services in Germany
than in other European nations.
• Decrease in the wages of the labour and increase in their
productivity.
This led to further disadvantage:-
• Mismatch of the common currency within european nations.
• There had to be wage equalisation.
 CONCLUSION
• Therefore, new mercantilist theory can be successful for a
while but in long run it will come up with both internal and
external constraints.
INTERNAL CONSTRAINT- Suppression of income and
consumption will meet political resistance.
EXTERNAL CONSTRAINT- countries having deficit will also
have to move towards suppressing wage rate.