What is a closed economy?
A closed economy does not engage in international trade, aiming to be self-reliant and fulfill domestic needs with its own resources. In the interconnected modern world, this is more theoretical than practical, though some economies are more isolated than others.
How do closed economies work?
Trade allows countries to use resources efficiently, producing goods and services they excel at and trading for others. This increases productivity and growth potential.
However, a closed economy, by isolating itself from world markets, misses out on benefits such as variety of goods, lower prices, and innovation. It has to rely solely on its own production and resources.
For instance, a nation without natural silicon sources crucial for semiconductors (used in various electronics) won't be able to import silicon or semiconductors if isolated. This hampers technological development and economic progress.