Closed and Open Economies

A closed economy (also called an autarky) is an economy that either does not participate in international trade at all or else severely limits international trade. In other words, these economies attempt to be completely self-sufficient, producing all the goods needed by their inhabitants internally. Historically, the Soviet Union and the People’s Republic of China were major closed economies. Today, even many countries (like China) typically associated with communism and socialism participate in “mixed economies.” Very few closed economies exist today, with a few exceptions such as North Korea and Cuba.

An open economy is one in which trade, both internal and external, is encouraged and in which limitations on domestic and international trade are minimal.