Open Economy And Its Effects On Foreign Countries

852 WordsMar 29, 20154 Pages
According to Barro, R. J., & Sala-i-Martin, X. (2004), an open economic allows its local businesses and individuals to trade with international businesses and individuals across the borders. On the other hand, closed economy does not trade or an economic relation with the rest of the work. An open economy engage in exporting and importing goods and services from other foreign countries which closed economy does not import or exports the goods and services. Open economy also engages is buying and selling shares, debentures, bonds and other financial securities with other countries which closed economy utilizes the internal financial securities. Open economy can borrow funds from foreign countries or lend funds to foreign countries while closed economy borrow funds from internal sources and also lead to borrowers within the country. Individuals or businesses in an open economy receive gifts from foreigners and also send gifts to foreigners while in a closed economy no gifts are shared receive and send between the locals and the foreigners. Finally, workers in an open economy can go and work in foreign countries and foreigners can also be allowed to work in the domestic territory which closed economy cannot allow foreigners to work in domestic territory or its workers to work outside the country. Domestic prices of goods and services and the general economic welfare of a country are affected by the openness of the economy. For example, when cheap goods and services are
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