Open economy

An open economy[1] is a type of economy where not only the domestic factors but also entities in other countries engage in trade of products (goods and services). Trade can take the form of managerial exchange, technology transfers, and all other kinds of goods and services. Certain exceptions exist that cannot be exchanged; for example – the railway services of a country cannot be traded with another country to avail the service.

It contrasts with a closed economy in which international trade and finance cannot take place. The practice of selling goods or services to a foreign country is called exporting. The act of buying goods or services from a foreign country is called importing. Exporting and importing are collectively given the name – international trade.

  1. ^ Dornbusch, Rudiger (2005). Macroeconomics. pp. 87–145.