Open Economy

Posted by Imam Larh on Thursday, 5 April 2018

Open Economy
Adam Smith in his article An Inquiry into The Wealth of Nation (1776) says, "Naturally every human will always get the impetus to be able to improve his life to be better for himself". 

Basically, humans do have unlimited desires, and to fulfill them human beings cannot possibly do it themselves so as to require the services of others. A diverse human desire leads to the exchange of goods and services. 

The exchange of goods and services is known as barter. This trade swap gradually evolved into the trade.

In fact, trading activities that were initially simple and limited to the environment of certain members of society, have now grown broadly into international trade. The original trading objective to meet human needs also evolved to make a profit.
Barter is a trade or exchange of goods with goods directly. This is common in economies that are not yet fully utilized money.
In an open economy, international trade is an important part of driving the economy of the country. The benchmark used to assess the degree of openness of an economy is the ratio of exports and imports to total GNP. 

If the ratio of import-export to GNP exceeds 50% the economy is declared more open.the In an open economy, the usual export activity contributes at least 10% of the GNP (Gross National Product) of a country.
The open economy is the economy of a country that does international trade as well as having financial and relationship nonfinancial with other countries, such as in education, culture, and technology.
With an open economy, which shows that every country concentrates on areas of comparative advantage, everyone's lives are expected to improve. 

With the development of the world economy, it is impossible for a country today to embrace a closed economy, an economy that does not recognize foreign trade transactions or other forms of economic relations between countries. Especially since the 1970s, there has been a fundamental change and has a long-term trend, known as globalization. 

The process of globalization has increased the degree of interdependence between nations, even resulting in the process of unifying the world economy so that the "boundaries" between countries in various business and business practices as if deemed no longer valid.

Globalization in the economy is a process that shows there is only one market, with the interdependence and interdependence of economies between one country and another becoming stronger. In fact, the interrelationship and interdependence occur not only in the economic field but also the social, cultural and other fields. 

Economic globalization is characterized by increasing depletion of investment or market boundaries nationally, regionally, or internationally. This situation occurs because of the following things.

1. The economy of the country is increasingly open.
2. The full use of the comparative advantage and competitive advantage of each country.
3. Communication and more sophisticated transportation.
4. The free foreign exchange traffic.
5. Organization of production and assembly management more efficient.
6. The development of multinationals around the world is growing rapidly.

Globalization tends to enrich advanced countries that traditionally have mastered strategic economic resources, such as capital, technology, and information so that the gap between rich and poor countries is steeper. 
Globalization is the process of integrating various aspects of human life everywhere they are, wherever they come from and whatever their background is pierced boundaries of state, nation, space, and time.
By embracing the open economy in today's era of globalization, we are required to be ready in the face of rapid developments from all sectors, including the trade sector, both domestic trade and international trade. In addition, in the era of globalization, our country, which has a very large domestic market, will be entered by foreign products so that the level of competition will be higher.

We must be able to compete in the domestic market and be able to penetrate into the global market so that in the future we will not be spectators in our own country.

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