2
$\begingroup$

In light of the recent economic sanctions on the Russian federation, I would like to know, if it is theoretically possible for a country like Russia, with a high level of natural resources and educational attainment to achive economic prosperity (>40,000$ gdp per capita) in the state of complete or near-complete economic isolation? And if that is possible, what economic measures would need to be taken to achieve that?

$\endgroup$

1 Answer 1

2
$\begingroup$

I would like to know, if it is theoretically possible for a country ... to achive economic prosperity (>40,000$ gdp per capita) in the state of complete or near-complete economic isolation

By your definition of prosperity (>\$40,000 gdp per capita) it could be eventually possible.

Autarky certainly shrinks production possibilities frontier of a country, because trade allows countries to produce more efficiently because of comparative advantage, economies of scale, exploiting differences in factor abundances and so on (you can see overview of all arguments in texts such as Krugman et al International Economics: Theory and Policy 8th ed).

However, country in principle could grow over time even without trade. Hypothetically, if whole world would unite it would be functioning under autarky (assuming no alien traders) as strictly speaking there would be no international trade. In such united world autarky would have no negative effect until some other civilizations would be encountered.

As an extension, if we had a government covering 90% of Earth there would be negative effects but probably small. There is for sure somewhere a tipping point where country would be too small to grow, but it stands to reason that sufficiently large country would be able to grow even in a state of autarky (although there is no practical way of knowing if Russia could be considered sufficiently large - outside running an experiment with the country). As long as economic growth is consistently higher than 0%, it is simply mathematical inevitability that country will eventually reach your definition of prosperity. For example, even with 0.001% growth of GDP per year Russia would eventually hit \$40000 GDP per capita at some distant future. However, by the time it reaches your absolute definition of prosperity other faster growing countries would perhaps consider \$40000 to be low income.

There is a lot of evidence more closed economies tend to grow more slowly than relatively more open economies (e.g. see Raghutla 2020) so even if Russia manages to grow after isolation one should expect that this growth will be rather slow.

And if that is possible, what economic measures would need to be taken to achieve that?

The literature on what policies promote economic growth is simply too broad to explore in detail but some policies that are widely thought to promote economic growth (aside from openness) are:

  • investment in R&D and technology
  • investment in education
  • promoting savings
  • adopting inclusive institutions, that is institutions that allow people to broadly participate in economy (e.g. strong property rights, open labor markets where people are not restricted to participate by their social class, religious or political or other beliefs/background, ability to set up business again not restricted by one's background, trying to improve governance - by reducing corruption for example, etc).

The above are some generally accepted policies that help to promote economic development. For more details consult Acemoglu Introduction to Modern Economic Growth or Acemoglu & Robinson Why Nations Fail?

$\endgroup$
3
  • $\begingroup$ Thank you for the answer. Do you think that the Modern monetary theory could help a completely isolated economy grow? $\endgroup$
    – user21346
    Mar 4, 2022 at 17:22
  • $\begingroup$ @user21346 you first need to explain what do you mean by modern monetary theory. Professional reputable economists often joke modern monetary theory is neither modern nor monetary nor theory (quip on Voltaire saying that Holy Roman Empire is neither Holy nor Roman nor an empire). Focusing on the last part, many economists say its not a theory - because till now nobody managed to put forward some model or series of rigorous models that are supposed to describe economy according to MMT, so MMT can be essentially whatever you like it to be. I heard versions of MMT that are slight deviations from $\endgroup$
    – 1muflon1
    Mar 4, 2022 at 17:28
  • $\begingroup$ New Keynesian macro with some extra assumptions on shape aggregate demand curve, to claims that MMT is literally new paradigm that covers everything from microeconomics to macroeconomics. As such its not possible to say if it could help unless you can specify what do you mean by MMT $\endgroup$
    – 1muflon1
    Mar 4, 2022 at 17:29

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Not the answer you're looking for? Browse other questions tagged or ask your own question.