It has been announced this evening that Economics Professor and New York Times journalist (but is that the right order?) Paul Krugman has won the Nobel Prize in Economics. There is some good background information on Krugman and the specific aspects of his work that won the prize at the Nobel Foundation site here.
The Nobel Museum in Stockholm
Of particular interest is this succinct scientific background paper [PDF], which gives a great overview of Krugman’s contributions to trade theory for all of us lay-economists. The introductory paragraphs excerpted below paint a good high-level picture of trade theory prior to the contributions of Krugman and his likeminded colleagues in the field:
As of the mid-1970s, trade theory was based on the notion of comparative advantage. Countries were assumed to trade with each other because of differences in some respect – either in terms of technology, as assumed by David Ricardo in the early 19th century, or in terms of factor endowments, according to the Heckscher-Ohlin theory developed in the 1920s. The latter was exposited by Bertil Ohlin in his 1933 monograph Interregional and International Trade; Ohlin was awarded the 1977 Economics Prize for his contributions to trade theory.
These theories provided good explanations of the trade patterns in the first half of the 20th century. But as many researchers began to observe, comparative advantage seemed less relevant in the modern world. Today, most trade takes place between countries with similar technologies and similar factor proportions; quite similar goods are often both exported and imported by the same country. At least among the richer countries, intra-industry trade – whereby, for instance, a country both exports and imports textiles – came to dominate relative to inter-industry trade – whereby, for instance, a country exports textiles and imports agricultural products.
I recommend having a full read of the PDF – interesting stuff. Lord knows in today’s sport and entertainment-obsessed world, we do not honour the people who achieve great academic success nearly enough.
Stockholm by night.