Open and Closed Economy Defined
Whatever economy a country has is dependent on the country itself – the decision of its government. But how do they differ?A closed economy is the type that does not trade with other nations (Wessels 2001). It does not interact with other economies in the world – no exports, no imports, and no capital flows. It means they have to be completely sufficient to whatever resources are available in their country. They have to be completely self-sufficient that they cannot rely on imports abroad and make income from selling products to other nations. Many macroeconomic models assume the economy is closed because it is easier to understand. It is said that in this type, the economy has no activity conducted with the outside economies. The ultimate goal for closed economy is to provide consumers with everything that they need within the county’s borders.Closed economy can be less likely successful if the country lacks sources of some raw materials such as oil, gas and coal. Other important trade goods such as rice, flour and other basic goods play vital role in affecting the success on this economy’s type. However, due to the prevalence of international trade, closed economy in its strict sense is rare. Even governments that seek to limit the political and cultural influences of the outside world are likely to trade with other economies on some scale (Guell 2006).But it is impossible that one country can have all the raw materials sufficient to sustain life and is highly dependent on agricultural and farming methods in other to survive and not to starve. Those countries operating a closed economy tend to be less developed than those who are free trading.A closed economy neither borrows nor lends to other nations, as well as, receives and sends gifts to them. Normal residents of a closed economy cannot go to other countries to work in their domestic territory. They do not allow any foreigner in domestic territory of a closed economy.