The pros and cons of a financially closed economy

Two large economies are closed financially : Japan ( given the huge domestic bias of Ja panese investors ) and China ( given its controls o n capital outflows). A financially closed economy has: Drawbacks: investors’ portfolios are poorly diversified; savings do not flow into efficient investments; But also advantages: even if monetary policy is highly expansionary, there is no fear of capital outflows or a currency crisis; interest rates can remain low relative to the growth rate or other countries’ interest rates.