New Trade Theory: Paul Krugman's Contributions

Topics: International trade, Economics, Comparative advantage Pages: 17 (4605 words) Published: November 26, 2010


Paul Robin Krugman, born February 28, 1953 is an American economist, Professor of Economics and International Affairs at the Woodrow Wilson School of Public and International Affairs at Princeton University, Centenary Professor at the London School of Economics, and an op-ed columnist for The New York Times.  In 2008, Krugman won the Nobel Memorial Prize in Economics for his contributions to New Trade Theory and New Economic Geography. He was voted sixth in a 2005 global poll of the world's top 100 intellectuals by Prospect.

According to the Nobel Prize Committee, the prize was given for Krugman's work explaining the patterns of international trade and the geographic concentration of wealth, by examining the impact of economies of scale and of consumer preferences for diverse goods and services. Krugman is known in academia for his work on international economics (including trade theory, economic geography, and international finance), liquidity traps and currency crises. According to the IDEAS/RePEc rankings, he is among the thirteen most widely cited economists in the world today.

As of 2008, Krugman has written 20 books and has published over 200 scholarly articles in professional journals and edited volumes.  He has also written more than 750 columns dealing with current economic and political issues for The New York Times. Krugman's International Economics: Theory and Policy, co-authored with Maurice Obstfeld, is a standard college textbook on international economics. He also writes on political and economic topics for the general public, as well as on topics ranging from income distribution to international economics. Krugman considers himself a liberal, calling one of his books and his New York Times blog “The Conscience of a Liberal”.


International trade is exchange of capital, goods, and services across international borders or territories. While international trade has been present throughout much of history (see Silk Road, Amber Road), its economic, social, and political importance has been on the rise in recent centuries. Industrialization, advanced transportation, globalization, multinational corporations, and outsourcing are all having a major impact on the international trade system. Increasing international trade is crucial to the continuance of globalization. Without international trade, nations would be limited to the goods and services produced within their own borders. International trade is in principle not different from domestic trade as the motivation and the behavior of parties involved in a trade do not change fundamentally regardless of whether trade is across a border or not. The main difference is that international trade is typically more costly than domestic trade. The reason is that a border typically imposes additional costs such as tariffs, time costs due to border delays and costs associated with country differences such as language, the legal system or culture. Another difference between domestic and international trade is that factors of production such as capital and labor are typically more mobile within a country than across countries.



It was the earliest form of trade. When human beings started agriculture it was only to fulfil their needs. However they started creating a surplus of the farm product they were farming. They were faced with the question: “What to do with the excess products?”

Then they soon realized that other farmers who produced other products were also producing it in excess. To have the best of both sides, the farmers exchanged their farm products and this gave rise to the system of barter.

As time passed and with the discovery of money (gold coins) this system of exchange of goods became less prominent. As the imperial society became developed and Kings becoming ruler of...
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