Mercantilism and Modern Growth

Nations close themselves voluntarily to varying degrees. Restrictions on the flow of ideas are difficult to understand, since open countries have higher relative incomes. This article provides an explanation based on the existence of two channels of public finance—traditional and mercantilistic. The latter refers to monopoly creation to provide a stream of government revenue. Strong, profitable monopolies require that the nation be closed to new ideas about technology and organization. The government sets the degree of restriction to balance current mercantilistic revenue with future revenue from traditional sources. The model is supported with numerical simulations and historical illustrations.