- Person
- Paul Krugman
- Lived
- b. 1953
- Field
- Economics
- From
- American
The story
By the early 1980s Paul Krugman and others had published many papers on the new trade theory, which merged the study of industrial organisation with international trade. Its core idea was that increasing returns to scale give countries a reason to specialise and trade even when they have similar resources and technology. But the ideas were scattered across journals and conference volumes.
During the 1983 to 1984 academic year, Elhanan Helpman of Tel Aviv University was visiting MIT. Krugman had just returned from a year at the Council of Economic Advisers in Washington and, as he later wrote, was struggling to reintegrate himself into academic life. Helpman persuaded him to join in writing a comprehensive synthesis of the field the two had helped pioneer. Krugman described ten months of total immersion in the project.
The result was Market Structure and Foreign Trade: Increasing Returns, Imperfect Competition, and the International Economy, published in 1985. As Krugman later wrote, it not only synthesised the field but also gave it a single comprehensive reference: anyone who asked what the new trade theory was about could simply be told to read their book. He acknowledged that this was good for the theory and, not incidentally, for the careers of its authors. The two followed it with Trade Policy and Market Structure in 1989.
The impact was striking. Before 1980, Krugman wrote, economists had virtually ignored the role of increasing returns in international trade; by around 1987 it had become part of the standard story, a shift for which he believed he and Helpman deserved most of the credit. Helpman later received the Israel Prize, and Krugman the John Bates Clark Medal.
Krugman also co-wrote International Economics: Theory and Policy with Maurice Obstfeld, which became a standard undergraduate textbook on international economics. Many models of international trade now follow the approach the two books laid out, building in economies of scale in production and consumers' preference for variety.
Why it matters
The book made new trade theory accessible to students and researchers worldwide, speeding its adoption across economics.
About Paul Krugman
Nobel-winning economist who explained why similar countries trade and why industries cluster, then became America’s most widely read, and most argued-with, economic columnist.
More about Paul Krugman
- Paul Krugman modelled how currency crises happenAs a graduate student interning at the Federal Reserve, Paul Krugman wrote A Model of Balance of Payments Crises, explaining speculative attacks on currencies.
- Paul Krugman founded the new economic geographyIn a seminal 1991 paper, Increasing Returns and Economic Geography, Paul Krugman began the field that explains why industries and people cluster in cities.
- Paul Krugman explained why similar countries tradeIn 1978 and 1979 Paul Krugman built models showing how economies of scale and consumers' taste for variety drive trade between similar countries.
- Paul Krugman co-wrote economics textbooks for studentsWith his wife, the economist Robin Wells, Paul Krugman wrote college textbooks on microeconomics (2004) and macroeconomics (2005).
Sources
- Incidents from My Career Paul Krugman, MIT
- Paul Krugman Wikipedia
Another act of tikkun olam. This is part of tikkun olam, the Jewish idea of repairing the world, and every one of us can add to it.