Compare and contrast a closed and an open economy. How can an open economy policy benefit a country's economic growth and development?

A closed economy does not engage in international trade, relying solely on domestic production and consumption. In contrast, an open economy actively participates in global markets, allowing for the exchange of goods, services, and capital.

Key Differences:

- Trade: Closed economies restrict imports and exports; open economies embrace them.

- Investment: Closed economies limit foreign investment; open economies attract it, fostering innovation.

Benefits of Open Economy Policies:

1. Increased Efficiency: Open economies benefit from comparative advantage, producing goods where they are most efficient.

2. Access to Resources: Countries can import raw materials and technology, enhancing productivity.

3. Market Expansion: Businesses can access larger markets, leading to economies of scale.

4. Knowledge Transfer: Open economies facilitate the exchange of ideas and technologies, driving innovation.

For example, countries like Singapore have thrived through open trade policies, significantly boosting their economic growth and development (World Bank, 2021).