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Autarky:

An autarky is an economy that is self-sufficient and does not take part in international trade, or severely limits trade with the outside world. It refers to the idea that a country should be self-sufficient and not take part in international trade. Autarky refers to an economic system that is not affected by influences from the outside, which relies entirely on its own resources. It is also referred to as a closed economy. The key benefit of autarky is that it provides an immense measure of independence from other states, since trade necessarily creates dependency in a state, both on imports (for products not produced domestically) and on exports (for foreign markets). Alexander Hamilton articulated this desire well when he said that the U.S. should be "independent of foreign nations for military and other essential supplies" so that it may be "least dependent" on the foreign policies of other states. But this benefit has to date proven to be nothing but a deception, damaging nations more than it helps them. The experience of countries that have pursued this Utopian ideal by substituting domestic production for imports is an unhappy one. No country has been able to produce the full range of goods demanded by its population at competitive prices. Indeed, those that have tried to do so have condemned themselves to inefficiency and comparative poverty, compared with countries that engage in international trade. Three theories that explain why autarky prices may be high in some countries and low in others:

  • Ricardian Theory
  • Specific Factors Theory
  • Heckscher Ohlin Theory

When autarky ends and free trade begins, the relative price of any given good will increase in the country where it used to be cheaper in autarky, and decrease in the country where it used to be more expensive in autarky. This follows from the fact that the free trade relative price of any traded good, in general, lies somewhere between the two autarky relative prices.




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