What is a Closed Economy?

Malcolm Tatum
Malcolm Tatum

Considered an anomaly in the world today, a closed economy is a strategy that focuses all economic transactions inward rather than outward. The idea behind the closed economy is to meet all consumer needs with the purchase and sale of goods and services that are produced internally. In addition to meeting the needs and desires of all consumers within the economy, the method also excludes the possibility of exporting goods and services. Thus, the economy is considered to be completely self-sufficient.

A closed economy does not have to be concerned with importing and exporting issues.
A closed economy does not have to be concerned with importing and exporting issues.

When the concept of a closed economy is applied to a geographic location such as a country, the system is normally referred to as an autarky. Essentially, an autarky goes to great lengths to avoid trade with other countries. Using the natural resources and combined talents of the population, the country will seek to meet every want and need of the country through the development and application of all the materials located within the geographic boundaries of the nation.

Closed economies are the direct opposite of open economies. With an open economy, much of the goods and services produced within the country are exported to customers around the world. At the same time, the open economy actively encourages importing any goods or services that cannot be produced domestically at competitive prices. The open economy motivates the interaction in a global community, while a closed economy is definitely built on the concept of isolation from other countries.

In today’s world, the idea of a closed economy has become less and less practical. Just about every country in the world functions with the aid of imported goods of some type. At the same time, most countries actively seek to develop goods and services that can be produced at low cost, and sold elsewhere at a substantial profit. Even in religious communities that were once able to maintain a closed economy within an agrarian society, the trend is to include some degree of economic interaction with the wider community.

Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

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Discussion Comments

anon138048

is there any example of a closed economy? is this concept of any help to them.

rocketmail

What will be better for a country such as Bhutan which is presently following the concept of gross national happiness-a closed or an open economy?!

anon15948

Assuming a closed economy with no government activity, how could (a) an increase, (b) a decrease in Aggregate Demand come about?

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