Closed Economy

An economy in which there is very little or no international trade. A much more restrictive definition of a closed economy is an economy in which there is no international trade, an autarkic economy. This condition is not practical because countries are somewhat interdependent; that is, no country can be entirely independent to such an extent that it does not trade with others. A much more reasonable interpretation of the concept is, therefore, contingent on the degree of openness to international trade or the exchange of goods, services, and assets. The degree of openness is normally estimated by the amount of imports and exports in and out of a country. This measure is usually indicative of the extent of the restrictions that are imposed on the free flow of trade. Socialist and communist economies are examples of closed economies because of limitations on free-market operations and property rights. For more information, see Case and Fair (2003).