Discuss the difference between mercantilism and neomercantilism approach in trade theories?
Answers
Was based on the idea that a country's wealth and power were served
through raising exports and accumulating precious metals like silver and gold.
It was also for the ideology that powerful nations had the opportunity to create a world economy using its strength to ensure local markets and supply sources are protected.
Was also based on the understanding that agriculture was important and should be promoted so a nation would minimize the need to import food.
Neo-mercantilism
Puts emphasis on protectionism (trade restrictions) and commercial policies as a means of increasing domestic income and employment.
It encourages exportation while discouraging importation of goods.
It is also based on controlling capital movement while centralizing currency decisions in the hands of central government.
The objective of neo-mercantilism is to increase levels of foreign reserves held by the government ensuring more efficient monetary and fiscal policy.
Answer:
Mercantilism is an economic theory that advocates government regulation of international trade to generate wealth and strengthen national power. Merchants and the government work together to reduce the trade deficit and create a surplus. Mercantilism—a form of economic nationalism—funds corporate, military, and national growth. It advocates trade policies that protect domestic industries.
In mercantilism, the government strengthens the private owners of the factors of products.
Neo-mercantilism is an economic theory that maximizes the benefits to and interests of a country such as higher prices for goods traded abroad, price stability, stability of supply, and expansion of exports with concomitant reduction of imports. It promotes exports, deters imports, and controls capital movement. The aim of neo-mercantilist policies is to increase the level of foreign reserves held by government; it allows more effective monetary policy and fiscal policy.