Question

Be sure to address each point in the question and explain your argument carefully.

2. Describe one evidence to support the idea that economies open to the world economy grow faster than economies that are closed.

Answer 1

2) Open economies grow more than Closed economies because:

In open economies, there is more competition and hence there is better quality of goods and services when trading takes place.

On the other hand in Closed economies, the suppliers have no competition and hence they lack the incentive to improve the goods and services.

Also in open economies, the countries trade with comparative advantage and specialise in the goods they produce. This increases the world pie of goods and services which are traded .

In Closed economies, given the limited resources and lack of specialisation, many poor countries are not able to produce sufficiently for the all the people. They may also not be able to produce all goods and services as well because of the same reason.

In opened economies, when goods and services are traded, there is more variety of goods and services rather than in Closed economies.

Also trade also promotes better and advanced technologies between countries and hence the countries become more developed with the newer technologies. This improves the skills and wages of workers of that country.

So open firms tend to increase their productivity and hence the exports further increases. On the other hand the growth of closed economies is limited to their own production and consumption.

(You can comment for doubts)