Paul R. Krugman | Dean of the Faculty – Princton 2015?

Paul Krugman will transfer to emeritus status at the end of the current academic year, after spending 15 years on the Princeton faculty. It is no exaggeration to say that Paul is one of the leading economists and one of the leading public intellectuals of his generation.

Paul grew up on Long Island, earned his B.A. at Yale, and received his Ph.D. from the Massachusetts Institute of Technology in 1977. After teaching at Yale for three years, he returned to MIT, where he revolutionized the field of international trade theory. A short stint at Stanford and a return engagement with MIT were followed by the longest stretch of his academic career, which he spent at Princeton with a joint appointment in the economics department and the Woodrow Wilson School. Of course, Paul is equally well known for his “other career,” as an outspoken opinion writer for The New York Times.

Paul was awarded the Nobel Memorial Prize in Economic Sciences in 2008 for his work on international trade with increasing returns to scale. When Paul came to the field, the traditional theory of trade based on the 19th-century writings of David Ricardo explained trade by differences between countries that generated a comparative advantage for each. But Paul (and others) noticed the tension in the fact that a majority of trade took place between similar countries, with similar factor endowments and access to similar technologies. Surely, something else besides comparative advantage must be at the root of such trade. Moreover, traditional trade theory emphasized interindustry trade, with countries specializing in the production of some goods and exporting them in exchange for others. In fact, much of actual trade was intra-industry; countries imported and exported different varieties of relatively similar goods that fell into the same industry classification. Paul developed an elegant theory of international trade based on economies of scale and product differentiation. The existence of scale economies internal to the firm limited the extent of product differentiation that the market could support. But trade allowed countries to consume varieties that were not produced locally. Countries trade in order to take advantage of a larger world market and all gained from the greater diversity in consumption and potentially from longer production runs. Soon, Paul’s models formed the core of the “new trade theory,” which rapidly generated a paradigm shift in thinking about trade that persists today.

Paul’s work on “new trade” led relatively quickly and naturally to his 1991 monograph Geography and Trade, which soon spawned the “new economic geography.” In his monograph and a nearly contemporary paper in the Journal of Political Economy on “Increasing Returns and Economic Geography,” Paul developed a now-famous “core-periphery model” in which economies of scale in manufacturing interact with transport costs to generate the agglomeration of economic activities in a few large markets, leaving the periphery with the residual, constant-returns-to-scale activities. He demonstrated the possibility for cumulative causation in which the core grows large, because a large market is attractive to businesses, which want to locate near to their customers. In the process, the periphery can be left behind, even if the periphery is no different from the core at the beginning of the process. Soon, an army of regional and urban economists were running with his ideas, much as had been true in the trade field just a decade earlier.

via Paul R. Krugman | Dean of the Faculty

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About David Lindsay Jr

David Lindsay is the author of "The Tay Son Rebellion, Historical Fiction of Eighteenth- Century Vietnam," that covers a bloody civil war from 1770 to 1802. It was published by Footmad and Cherry Blossom Press on September 11, 2017. Find more about it at TheTaySonRebellion.com, also known as, DavidLindsayJr.com.
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