Nobel Prize

Paul Krugman was awarded the 2008 Nobel Prize in Economics this morning. To the public, the Princeton economist may be best known for his New York Times commentary. To economists, he is best known for his important insights and contributions in International Trade theory.

From the Nobel Prize press release:

"How are we affected by globalization? What are the effects of free trade? Why do increasing numbers of people flock to large cities, while rural areas become depopulated?

"These questions cannot be answered without a theoretical foundation. For a long time, the analysis of foreign trade had been based on a well-established theory which explained why some countries export certain goods and import others. After World War II, however, it became increasingly obvious that important trade patterns did not quite correspond with that theory. In 1979, the US economist Paul Krugman proposed a new model which provided a better explanation for the observed patterns.

"In later research, Krugman has shown that the model he initially developed for international trade could also be used to clarify key issues in economic geography. In the context of both foreign trade and economic geography, the objective is to explain what goods are produced where. Theories of economic geography also attempt to specify the forces whereby labor and capital become located in certain places and not others."