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Reclaiming Production: A Dynamic Mercantilist Model of Trade, Capability, and National Welfare

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  • Heng-fu Zou

Abstract

This paper develops a dynamic model of national production strategy that departs from the neoclassical theory of comparative advantage and instead embraces a mercantilist framework grounded in strategic autonomy, endogenous learning, and civic-industrial preference. Building on the critiques of Cass (2023) and extending the Viner model of mercantilism (Zou, 1997), the model features a representative agent who derives utility from both consumption and domestic production, penalizes trade dependence, and internalizes the dynamic returns to learning-by-doing and apprenticeship-based labor formation. We formally characterize the agent's optimal intertemporal behavior and conduct numerical simulations that reveal sharp divergences between free-trade equilibria and production-centered strategies. The results demonstrate that industrial strength, innovation capacity, and economic sovereignty are cumulative and path-dependent--eroding under excessive trade reliance and com pounding under strategic reinvestment. The framework offers theoretical and empirical justification for reindustrialization, strategic trade policy, and the reconfiguration of global economic norms in favor of long-run national capability.

Suggested Citation

  • Heng-fu Zou, 2025. "Reclaiming Production: A Dynamic Mercantilist Model of Trade, Capability, and National Welfare," CEMA Working Papers 772, China Economics and Management Academy, Central University of Finance and Economics.
    • Handle: RePEc:cuf:wpaper:772
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    1. Dani Rodrik, 1998. "Has Globalization Gone Too Far?," Challenge, Taylor & Francis Journals, vol. 41(2), pages 81-94, March.
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