Congratulations to Paul Krugman

Paul Krugman was just awarded the Nobel Prize this morning. As usual, Tyler Cowen has a fantastic summary. Alex Tabarrok explains what New Trade Theory is and why it matters.

The Nobel Prize website says:

This year’s Laureate is awarded the Prize for his research on international trade and economic geography. 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.

The prize was for his economic work and not his punditry. Whatever you think of his political views, it is difficult to dispute the merits of his earlier economic work.

Greg Mankiw has a few useful links about Krugman:

To learn more about the newest laureate, you can read an analysis of Paul's research contributions and an analysis of his op-ed pieces.

Here is another summary of his work from The New York Times:

Mr. Krugman received the award for his work on international trade and economic geography. In particular, the prize committee lauded his work for “having shown the effects of economies of scale on trade patterns and on the location of economic activity.” He has developed models that explain observed patterns of trade between countries, as well as what goods are produced where and why. Traditional trade theory assumes that countries are different and will exchange different kinds of goods with each other; Mr. Krugman’s theories have explained why worldwide trade is dominated by a few countries that are similar to each other, and why some countries might import the same kinds of goods that it exports.

Arnold Kling has more:

Before Krugman, the only explanatory variable in international trade was factor endowments. You produced stuff because you happened to have the right type of land, or the right type of labor, or what have you. Moreover, there were diminishing returns, which meant that once location A had a large capacity to produce something, at the margin the next increase in production capacity for that product would likely be in location B.

Krugman suggested that there are increasing returns in an industry. That theory explains why movies are done in Hollywood, fashion is done in New York, autos are done in Detroit, and so forth. International trade patterns may owe more to historical accidents and path dependence than to factor endowments.

While I don't agree with Krugman on many of his policy and political views, I congratulate him a well-deserved prize.

More thoughts from Justin Wolfers and Bryan Caplan.

Of course, not everyone is happy.