Closed economy
From Economypedia.com
A closed economy is a self-sustained economic unit with no trading or business relations with any other unit outside it. The term usually refers to a particular nation or an area with common currency and is used to denote little or no economic exposure to the outside world. Instead of importing and exporting goods, a closed economy needs to be entirely self-sustaining.
The theoretical construct of a closed economy helps in developing certain types of macroeconomic theories and models. A closed economy is easier to understand and to model than an open economy, also known as a market economy or free market economy, or than a mixed economy.
The implementation of closed economic conditions in a country is known as autarky. Generally associated with low levels of development in the economic sector or authoritarian domination over the country, closed economy in the real world means no trade relations with any other country.
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Examples
There are not many examples of truly closed economies in today's increasingly globalised world. The most closed economy today is probably North Korea, but since relies heavily on external aid to feed its people, it cannot be described as a 'functioning' closed economy.
Reasons a country would want to have a closed economy
There are various reasons a nation would opt for a closed economy. Some of them may include:
- Nationalistic ideology or pride in being entirely self-reliant. Much of this ideology can be associated with communism and/or socialism.
- Political instability or lack of international trust may cause a nation to impose trade embargos on all other countries. (However, actually doing this may be very difficult).
- Other ideological, isolationist policies that might be instituted to prevent outside thought, ideas, theories, communication, or even knowledge from influencing a country's population.
- A closed economy can be imposed on a nation when no other country will trade with it.
Further reading
- North Korea's Closed Economy: The Hidden Opening; Hy-Sang Lee
- North Korean Economy Watch articles on the country's closed economy
- Who Says They Don't Want Foreign Investment? North Korean article in EconomyWatch.com
References
- Definition of closed economy on economist.com
- Investorwords.com definition of closed economy
- Nationmaster.com definition of closed economy
See also
- Autarky
- Capitalism
- Communism
- Free market economy
- Open economy
- Mixed economy
- Command economy
- Planned economy
