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I was wondering if it is possible to run a country based only on domestic economy and not to enter the world economy. Basically, if certain economy of a certain country fails and poses threat to world economy, can other countries seal off their economies and still function with sustained growth and flourishing markets based on domestic economy itself?

I know this a naive question, but I tried to find an answer on on the internet and didn't get a satisfactory answer.

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    $\begingroup$ The United States and Japan have <0.2 of import/GDP ratio, which makes them pretty much closed. International trade is not critical. $\endgroup$ – Anton Tarasenko Jul 7 '16 at 10:21
  • $\begingroup$ @AntonTarasenko is that <0.2% or <20%? I would say the latter is non-negligable. $\endgroup$ – Giskard Aug 5 '16 at 19:17
  • $\begingroup$ @denesp Below 20%. Welfare losses in a big closed economy can be partly compensated with domestic production. $\endgroup$ – Anton Tarasenko Aug 5 '16 at 23:00
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    $\begingroup$ @AntonTarasenko Sure, but I would not call that "pretty much closed". $\endgroup$ – Giskard Aug 5 '16 at 23:51
  • $\begingroup$ @AntonTarasenko plus there is a lot of foreign direct investment, tourism, labour mobility, inflow of ideas, international cooperation in standards, and a long list of interdependencies in so many dimensions that are not reorded by "imports". $\endgroup$ – luchonacho Aug 22 '17 at 6:09
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It depends on what you mean by "sustained growth" and "flourishing markets".

Clearly the Earth as a whole is a big market. If you do not look at human made borders: the global economy is currently growing and some would say it is flourishing. There is no physical reason why this could not be done without the borders.

There are areas where the current technology cannot support the current population without outside help. An example is the heavily industrialized North Korea (which seems to motivate your question) which gets large amount of aid in food from the UN.

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Yes. Sort of. A closed economy can theoretically flourish. But not as much as if were more open. The more trade that occurs, the more prosperous the trading partners will be. Approaching the square of the total amout of available trade.

Metcalfe's Law quantitatively models this answer:

$$ \Theta(n) = \frac {n(n-1)}{2} $$

where $\Theta$ is the number of connections within a network and $n$ is the number of nodes. The total value of the network can be thought of as the aggregate combined real GDP of the included sub economies.

So the more economies that trade with the subject economy, the value of the entire network asymptotically approaches $n^2$.

$$ \lim_{n \to \infty } \frac{\Theta(n)}{n^2} = 1 $$

A network modeled by Metcalfe's Law

A network modeled by Metcalfe's Law

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  • $\begingroup$ The "value of the network" seems ill defined here. The network of a single country has no value, but a single country can probably have some sort of value creating economy. $\endgroup$ – Giskard Jul 6 '16 at 7:38
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    $\begingroup$ This is a very abstract approach. Surely it matters how much the economies differ in their factor endowments? $\endgroup$ – Adam Bailey Jul 6 '16 at 8:46
  • $\begingroup$ @AdamBailey: Agreed. One feature of this approach is that it is a simplified (some might argue oversimplified) theoretical first order approximation only. This approach simplifies the answer enough for the average person to understand quantitatively. $\endgroup$ – Mowzer Jul 6 '16 at 14:51
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    $\begingroup$ @denesp: I agree about the abstractness. But the tradeoff is a reasonably accurate yet relatively simple quantitative model. I agree and will try and edit to clarity. $\endgroup$ – Mowzer Jul 6 '16 at 17:58
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    $\begingroup$ @denesp: Also, the granular nature of the node approach allows the model to factor into account the difference in relative sizes of economies. And to AdamBailey's point, one could conceivably augment the Metcalfe model to take into account other factors as well. $\endgroup$ – Mowzer Jul 6 '16 at 18:00

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