Closed Economy

Business, Legal & Accounting Glossary

Definition: Closed Economy



Full Definition of Closed Economy


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 a 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, a closed economy in the real world means no trade relations with any other country.

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.

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Definition Sources


Definitions for Closed Economy are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 29th March, 2020 | 2 Views.