In the past, self-sufficiency policies have been used to varying degrees. Western European countries used it under mercantilist politics from the 16th to the 18th century. This prompted economists such as Smith, Ricardo, and Frédéric Bastiat to refine the philosophies of the free market and free trade as counter-arguments. Sometimes left-wing groups have clashed over self-sufficient projects. During the Spanish Civil War, the anarcho-syndicalist CNT and the socialist UGT had formed economic cooperatives in the Levant, which they said „manage the economic life of the region independently of the government.“  But the communist factions responded by repressing these cooperatives in order to put economic control back in the hands of the central government. In a closed economyA closed economy is an economy in which no goods or services are imported or exported, which means that the economy is self-sufficient and has no commercial activity outside the economies for the sole purpose of satisfying the needs of all domestic consumers within national borders.read more, there is no foreign sector and therefore no international activity TradeInternational tradeInternational trade means trade or exchange of goods and/or services within international borders. Read More , and sometimes the government owns many companies. In addition, financial markets may not exist independently. Autarky refers to a nation operating in a state of autonomy. Countries that pursue a policy of self-sufficiency are characterized by self-sufficiency and limited trade with their global partners. The definition of self-sufficiency comes from the Greek – cars, which means „self“, and arcein, which means „to push back“ and „to be strong enough to satisfy“. A completely self-sufficient nation would be a closed economy and would have no source of external support, trade or aid. In practice, however, no modern nation has reached this level of self-sufficiency, even if it has been subject to punitive sanctions.
This is because the global supply chain has made it difficult to achieve true economic isolation, so any policy of self-sufficiency is a matter of degree rather than complete isolation. The equilibrium price in self-sufficiency will be a relevant reference for analyzing the impact of certain variables on the real exchange rate. In self-sufficiency, by definition, there is no international trade in goods or assets. The representative person can therefore neither borrow nor lend and spends all his income in each period consuming tradable and non-tradable goods produced on the domestic market. Therefore, the use of Eq. (5.9), which defines income for each period, we have ptCt = Y ̄t ∏ t (pNt). The self-sufficiency version of market equilibrium for non-tradable goods is given by9 This condition states that in equilibrium, the precautionary motive pushes both the risk-free rate r and the risk-adjusted return ρˆ below the benchmark return in the risk-free economy, ρ+γg. Investing in capital is risky, so the precautionary motive increases the demand for risk-free bonds.
In balance, these bonds are in a net zero supply, so the risk-free interest rate must fall to the point where households decide not to hold them. This is the same logic as in Aiyagari (1994). The precautionary motive also tends to depress the demand for capital, as this is the source of risk. Therefore, capital must offer a break-even premium. If we replace the definition of ρˆ and φ, we obtain after simple manipulations46: Without a transfer scheme, it is relatively easy to follow the dynamic effects of economic integration. For the sake of simplicity, suppose that the world contains many symmetrical regions, so before integration, they all had the same law of motion. The top panel of Figure 7 shows the impact of economic integration in the „deterministic“ world when yield declines are sharp and effects on market size are small. Economic integration increases the stock of physical capital to equilibrium and triggers a period of strong growth that eventually ends. It is easy to see that the effects would be similar in the „stochastic“ world, with economic integration constantly increasing the steady-state interval.
To use the jargon of growth theory, when μα + υ<1 economic integration has an impact on income. Figure 7 below shows the opposite case, where declining yields are low and market size effects are strong. In this case, economic integration moves downwards by the value of the steady state and continuously increases the growth rate. Again, it`s easy to see that the effects would be similar in the "stochastic" world, with trading shifting the threshold interval to the left. To use the jargon of growth theory, when integration μα + υ ⩾1 has growth effects on income. The self-sufficient interest rate is solved by replacing k̃(r) with the equilibrium condition of the asset market: φ(k̃(r)+h̃(r))=k̃(r), where h̃(r)=(1-α)k̃(r)α/(r-g). This gives rise to the implicit expression: this plus risk-sharing considerations imply that the restriction of participation tends to be binding when the equipment is relatively high.