Beyond 'comparative advantage'
Wednesday, 26 November 2008
AMERICAN academic Paul Krugman was awarded the 2008 Nobel Memorial Prize in Economic Sciences in recognition of his "analysis of trade patterns and location of economic activity," according to the Nobel Committee, which announced the award last month.
Krugman, who is a professor of economics and international affairs at Princeton University in New Jersey, has helped to answer questions concerning the effects of free trade and globalization by integrating "the previously disparate research fields of international trade and economic geography," according to a press release by the committee.
Five Nobel prizes were established by the 1895 will of Alfred Nobel, a Swedish chemist, engineer and industrialist. In 1968, Sveriges Riksbank, Sweden's central bank, established an award for economics in memory of Nobel. The 2008 award comes with a $1.4 million prize.
Krugman's research upset the prevailing view that countries simply trade according to comparative advantage - exporting only those items they can produce more cheaply and efficiently while importing only items for which they do not enjoy such a comparative advantage. His theories incorporated consumers' desire for diversity in product choices and explained why, for example, two car-manufacturing countries like Germany and France would export and import cars back and forth. He applied his theories to show how companies weigh the efficiency of concentrating their sales efforts in one place as opposed to multiple locations.
"The new theory clarifies why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products - for instance, a country such as Sweden that both exports and imports cars," the committee said.
In addition, Krugman said the rise of global urbanization can be explained by a combination of economies of scale and reduced transportation costs.
"Lower transport costs can trigger a self-reinforcing process whereby a growing metropolitan population gives rise to increased large-scale production, higher real wages and a more diversified supply of goods. This, in turn, stimulates further migration to cities," the press release said.
The committee said Krugman's theories have shown that these processes can result in regional divisions within countries between "a high-technology urbanized core and a less developed 'periphery.'"
(An America.gov feature, released by the US Department of State through the US Embassy in Dhaka)
Krugman, who is a professor of economics and international affairs at Princeton University in New Jersey, has helped to answer questions concerning the effects of free trade and globalization by integrating "the previously disparate research fields of international trade and economic geography," according to a press release by the committee.
Five Nobel prizes were established by the 1895 will of Alfred Nobel, a Swedish chemist, engineer and industrialist. In 1968, Sveriges Riksbank, Sweden's central bank, established an award for economics in memory of Nobel. The 2008 award comes with a $1.4 million prize.
Krugman's research upset the prevailing view that countries simply trade according to comparative advantage - exporting only those items they can produce more cheaply and efficiently while importing only items for which they do not enjoy such a comparative advantage. His theories incorporated consumers' desire for diversity in product choices and explained why, for example, two car-manufacturing countries like Germany and France would export and import cars back and forth. He applied his theories to show how companies weigh the efficiency of concentrating their sales efforts in one place as opposed to multiple locations.
"The new theory clarifies why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products - for instance, a country such as Sweden that both exports and imports cars," the committee said.
In addition, Krugman said the rise of global urbanization can be explained by a combination of economies of scale and reduced transportation costs.
"Lower transport costs can trigger a self-reinforcing process whereby a growing metropolitan population gives rise to increased large-scale production, higher real wages and a more diversified supply of goods. This, in turn, stimulates further migration to cities," the press release said.
The committee said Krugman's theories have shown that these processes can result in regional divisions within countries between "a high-technology urbanized core and a less developed 'periphery.'"
(An America.gov feature, released by the US Department of State through the US Embassy in Dhaka)