- Person
- Paul Krugman
- Lived
- b. 1953
- Field
- Economics
- From
- American
The story
Why do so many people live in big cities, and why do similar businesses gather in the same places, such as finance in a few capitals or technology firms in Silicon Valley? In the late 1980s Paul Krugman realised that the ideas he had developed to explain trade could also answer these questions. The spark came when the business strategist Michael Porter sent him the manuscript of The Competitive Advantage of Nations, with its emphasis on regional industrial clusters.
Krugman began with complicated ideas and gradually boiled them down, filling sheets of scrap paper during a sleepless night at the University of British Columbia and working through numerical examples in a hotel room in Hawaii. Within a few months he had a basic model, and by the autumn of 1990 he was ready to give a set of lectures on the subject, published as Geography and Trade.
In 1991 he published "Increasing Returns and Economic Geography" in the Journal of Political Economy, the seminal paper of what became known as the new economic geography. It became his most cited academic paper, with more than double the citations of his next one by early 2009, and he called it the love of his life in academic work. He set out, in his own words, to establish economic geography as a branch of economics taken as seriously as international trade.
The Nobel committee explained the core insight: economies of scale combined with falling transport costs can set off a self-reinforcing process in which a growing city population leads to larger-scale production, higher real wages and a wider choice of goods, attracting still more people. The result can be a region divided into a high-technology urban core and a less developed periphery. Like his trade theory, the model showed how history and accident can decide where activity settles, because once a centre gets ahead its advantages tend to build on themselves.
Krugman saw the new trade theory and the new economic geography as parts of a single project built on increasing returns. In 2008 the Nobel committee honoured both, praising him for integrating the previously separate fields of international trade and economic geography.
Why it matters
Krugman's geography models help planners and governments understand why some regions boom while others fall behind.
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 co-wrote the bible of new trade theoryWith Elhanan Helpman of Tel Aviv University, Paul Krugman wrote Market Structure and Foreign Trade, the book that brought the new trade theory together.
- 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
- Paul Krugman Wikipedia
- Incidents from My Career Paul Krugman, MIT
- Paul Krugman Jewish Virtual Library
- The Prize in Economic Sciences 2008, Press release NobelPrize.org
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.