Stockholm: The Nobel Prize in Economics for 2008 was on Monday awarded to Paul Krugman of the US for his analysis of trade patterns and location of economic activity. Krugman, 55, 1953 is professor at Princeton University.
In its citation, the Nobel committee said: "Patterns of trade and location have always been key issues in the economic debate. What are the effects of free trade and globalization? What are the driving forces behind worldwide urbanisation? Paul Krugman has formulated a new theory to answer these questions. He has thereby integrated the previously disparate research fields of international trade and economic geography."
In an interview after being announced the winner of the 2008 Nobel prize for economics, Paul Krugman warns of a recession even if credit markets unlock. He also praises British Prime Minister Gordon Brown's economic rescue plan.
Krugman worked on the concept of economies of scale. His theory clarifies why worldwide trade is in fact dominated by countries which not only have similar conditions, but also trade in similar products - for instance, a country such as Sweden that both exports and imports cars.
"This kind of trade enables specialization and large-scale production, which result in lower prices and a greater diversity of commodities," the citation said.
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.
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. Krugman's theories have shown that the outcome of these processes can well be that regions become divided into a high-technology urbanized core and a less developed "periphery", the Nobel committee said.
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