Paul Krugman, the US Professor from Princeton University has won the Swedish Riksbank Prize in Economic Sciences in memory of Alfred Nobel for 2008, announced the Royal Swedish Academy of Sciences in Stockholm on Monday.
The Academy awarded the prize to Paul Krugman for his analysis of trade patterns and location of economic activity.
By having shown the effects of economies of scale on trade patterns and on the location of economic activity, his ideas have given rise to an extensive reorientation of the research on these issues, explained Mats Persson, Professor of Economics at Stockholm University and also member of the Economic Prize Committee.
"In the past, the English economist David Ricardo's theory of comparative advantage to explain the range and composition of international trade dominated in the field. But in 1979, the US economist Paul Krugman proposed a new model which provided a better explanation for the observed patterns." Said Persson.
The basic idea is rather self-evident, but the step from speculation to a stringent and cohesive theory is substantial and this was precisely the step Krugman took in his short, 10 page article in the Journal of International Economics in 1979, according to the press release at the conference in Stockholm.
In later research, Krugman has shown the model he initially developed for international trade could also be used to clarify key issues in economic geography.
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. This kind of trade enables specialization and large scale production, which result in lower prices and a greater diversity of commodities.
Economies of scale combined with reduced transport costs also help to explain why an increasingly larger share of the world population lives in cities and why similar economic activities are concentrated in the same locations.
According to Krugman's theory, 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.
At the press conference, through telephone, professor Krugman said it is an unusual morning for him, he is greatly honored, and the honor is the wonderful thing.
Commenting on the current financial crisis, he said he was terrified.
"I was terrified. The financial crisis is even bigger than that in 1990s in Southeast Asia and extremely serious. But I am glad to see the policies are starting to make sense. Yes it is a large scale crisis." Professor Krugman said to the press over the phone.
The economics prize wraps up this year's Nobel prizes after medicine, physics, chemistry, literature and peace.
The economics award is not one of the original Nobel Prizes. It was created in 1968 by the Swedish central bank, Sveriges Riksbank, in Alfred Nobel's memory.
The prize is awarded by the Royal Swedish Academy of Sciences in accordance with the same principles as those governing all other Nobel Prizes.
Nobel Prize winners receive 10 million Swedish kronor (about 1.4 million US dollars), a gold medal and diploma from the Swedish king on Dec. 10, the anniversary of Nobel's death in 1896.
By Xuefei Chen People's Daily Online correspondent in Stockholm.
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