An open economy
is an economy in which there are economic activities between the domestic community and outside. People and even businesses can trade in
goods and services with other people and businesses in the international community
, and funds can flow as investments across the border. Trade can take the form of managerial exchange, technology transfers, and all kinds of goods and services. (However, certain exceptions exist that cannot be exchanged; the railway services of a country, for example, 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 act 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 called international trade.
There are a number of economic advantages for citizens of a country with an open economy. A primary advantage is that the citizen consumers have a much larger variety of goods and services from which to choose. Additionally, consumers have an opportunity to invest
their savings outside of the country.
If a country has an open economy, that country's spending in any given year need not equal its output of goods and services. A country can spend
more money than it produces by borrowing
, or it can spend less than it produces and lend the difference to foreigners
. As of 2014 there is no totally-closed economy.