Open economies as the name suggests are economies that maintain financial and trade ties with other countries. In an open economy, countries will trade import and export goods and engage in international trade activities. An open economy also allows corporations to borrow funds, and banks and financial institutions to lend funds to foreign entities. Open economies will also trade technological know how and expertise.
A closed economy is one that does not interact with other countries. A closed economy will not import or export goods and services, and will become self-sufficient by producing what they need locally. The disadvantage of a closed economy is that all needed goods will have to be manufactured regardless of whether the economy has the required factors of production. This could result in inefficiencies which may drive up the cost of production and, therefore, increase the price that consumers pay.
Closed vs Open Economy
Closed economies and open economies are very different to one another in terms of the attitude towards trade and interaction with foreign countries. Closed economies are very rare as most closed economies have evolved into open economies over time. A closed economy does not interact with other countries and prefers to be self-sufficient, which may hinder their growth. An open economy, on the other hand, is beneficial to the global economy and will result in more trade, more funding for investment, and better development of products and services.