DYNAMIC ANALYSIS IN THE VINER MODEL OF MERCANTILISM

This paper models the central theme of mercantilism in Jacob Viner's i nterpretation-power vs plenty-in a framework of modern theory of inter national finance. It is shown that, in the Viner model of mercantilism , a nation with strong mercantilist sentiment ends up with large forei gn asset accumulation and high consumption in the long run; an import tariff leads to more foreign asset holding and more total consumption; furthermore, in the Viner model, the Harberger-Laursen-Metzler effect exists unambiguously: a permanent terms-of-trade deterioration causes a current account deficit in the short run. (C) 1997 Elsevier Science Ltd.