Open Economy - Advantages of An Open Economy

Advantages of An Open Economy

Greater Choice for Consumers : In an open economy, the domestic markets are merged with international markets and so the consumers are not limited to consume domestically produced goods and services. They can choose the best from the world market.

Increased competition and Lower Prices: A related benefit of an open economy is that the consumers have an increasing number of producers or goods and services competing for their business.Competition among producers results in lower prices and improved services. An open economy allows consumers to benefit from the lower labor and operating costs.

Expanded markets and Customer bases :The benefits of an open economy are not limited to consumers. Global interaction allows companies to gain access to customers in other nations. This motivates them to produce world class products, expand their business and customer base.American brands as McDonald's, Apple and Starbucks, plus Finnish communications giant Nokia, have established worldwide customer bases.

Global Investment Opportunities:For investors, an open economy expands the opportunities for investing capital. Investors large and small can choose to invest in known domestic companies, or they can invest in established industrial giants of other nations. Investors with an appetite for risk, meanwhile, can invest in the emerging markets of Latin America, Africa and southern Asia.In an open economy, financial and goods markets are closely related. To understand this relationship, we look at the savings and investment identity.

Gains from Trade :One of the key principles of economics is that trade benefits all parties involved. International trade involves interactions with other economies and is therefore possible only among open economies. English economist David Ricardo, argued that trade allows nations to specialize in producing the goods in which they have comparative advantages and trade with other nations to obtain goods in which other nations specialize. This in turn provides consumers with a greater array of goods from which to select.