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What Are the Advantages of a Closed Economy?

By Alex Newth
Updated May 16, 2024
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An economy in which a country or region does no importing and exporting, otherwise known as a closed economy, is usually thought of as a disadvantage that stunts an area’s growth, but there are some advantages. Self-reliance means that the country does not have to worry about the global economy. A closed region is independent from other regions, so there is no fear of coercion or interference. Transit costs may be a problem for an isolated region, but the absence of imports and exports relieves all shipping costs. Regulation of goods is common to many regions, and this system makes it slightly easier to regulate internal goods.

A closed economy must be self-sufficient, meaning that the region must have all the items it needs without depending on other regions or countries. While self-sufficiency may be difficult to maintain, especially in terms of luxury items, it also ensures the region does not have to worry about the economy of other nations. Under normal circumstances, the global economy thrives and goods can be traded for a profit. If it is suffering, however, then a closed region will not feel the effects, unlike all the regions and countries participating in it.

A direct result of not relying on other countries and regions is that the closed economic region is independent. An open economic region, or one that depends on importing and exporting, is susceptible to external demands that could weaken the region’s infrastructure. If an exporting region orders an importing region to reduce its military power or to give the exporting region more money for goods, then the importing region must comply or lose the trade.

Some areas of the world are isolated, and shipping to those areas can be difficult. For example, regions in a desert or at the top of a mountain will incur higher transit costs. This may force businesses to sell goods at extravagant prices just to cover transit, which can lead to weak sales. These prices also may keep people from obtaining goods necessary for living, which can weaken the economy. Closing such regions economically eradicates high transit costs, leaving more money for the internal economy.

Nearly every country or region has regulations on items produced and sold. These ensure that the product is safe or satisfies certain conditions. While regulating every item is difficult, a region with a closed economy may find it slightly easier. This is because it does not have to check imports, only internal items.

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Discussion Comments
By stoneMason — On Dec 01, 2013

I'm not sure if this is worth discussing because there are no closed economies in the world. There may be small regions within countries and maybe islands that are self-sufficient. But every country has an open or partially open economy because this is the only way for development.

By ZipLine — On Nov 30, 2013

@literally45-- And don't forget about competition. There is a lot of competition from foreign firms in an open economy. Foreign firms can push national firms out of the industry through monopolies. To prevent this, governments of open economies have to regulate the economy, offer subsidies, tax breaks etc., to save those national firms. So the government ends up spending more money just to protect its own industry. This is not even a concern in a closed economy.

By literally45 — On Nov 29, 2013

The biggest advantage of a private, closed economy is definitely protection from a suffering global economy.

Every time that a country important for global trade experiences an economic crisis, all other countries are impacted too. A nation crisis quickly becomes a global one. But if a country doesn't trade, there is no influence, positive or negative from the global economy. This is a great advantage, especially during times of global economic instability. And I think that we're in those times now.

Why should a small country suffer economically because a few banks in a bigger country went bankrupt? It doesn't make sense.

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