2008 Nobel Laureate

On October 13, 2008, Professor Paul Krugman of Princeton University was awarded the 2008 Nobel Prize in Economics for pioneering a New Trade Theory. This new theory helps explain patterns of trade and location, for example that countries specialize in the production of certain varieties of the same goods. The building blocks of Krugman’s theory is economies of scale (that it is more efficient to produce large amounts of a good) and consumers’ preference for variety – they like to have a choice.

At CBS Department of Economics, several researchers are working to extend Paul Krugman’s theory.

In an analysis of Danish exporting companies, professor Jan Rose Skaksen applies Paul Krugman’s theories on the importance of increasing returns to scale, imperfect competition and product differentiation. The analysis is published in
Journal of International Economics and shows that exporting companies that use high skilled labour intensively fare better in the global competition than do other exporting companies. Professor Skaksen argues that this is because these firms specialize in producing varieties of goods which are very different from those that are produced by firms in low wage countries.

Professor Anders Sørensen has analysed “R&D, Learning, and Phases of Economic Growth” using a dynamic version of Paul Krugman’s model of imperfect competition. The analysis offers an explanation of how productivity improvements obtained through learning and research, respectively, interact to create economic growth. The research is published in
Journal of Economic Growth.

PhD student Lars B. Termansen has recently submitted a thesis entitled “Regional General Equilibrium Models for Denmark”. The models extend Krugman’s (1991) model of New Economic Geography to analyse the Danish regional equalization policy of transferring public funds from core to periphery. Termansen finds that public transfers from core to periphery crowd out production in the periphery, thus mitigating the effects of the transfer.

Internet resources:

Link to the web page with the arguments of the Royal Swedish Academy of Sciences:

http://nobelprize.org/nobel_prizes/economics/laureates/2008/index.html

Paul Krugman’s academic home page:

http://princeton.academia.edu/PaulKrugman

Paul Krugman’s home page as Op-Ed columnist for the New York Times:

http://krugman.blogs.nytimes.com/

References:

Jakob Roland Munch & Jan Rose Skaksen (2008) “Human Capital and Wages in Exporting Firms”,
Journal of International Economics, 75, 363-372.

Anders Sørensen (1999) “R&D, Learning, and Phases of Economic Growth”,
Journal of Economic Growth 4(4): 429-445.

Contacts:

Professor Jan Rose Skaksen: jrs.eco@cbs.dk

Professor Anders Sørensen: as.eco@cbs.dk