KRUGMAN and HIS TRADE THEORY

U.S economist and Princeton University professor who is also a prolific writer and columnist and fierce critic of economic policies of George Bush won the Nobel Prize in Economics for his theory on world trade.The 55 year economist Prof Krugman was honoured for his analysis of world trade patterns and location of economic activity according to the statement issued by the Royal Swedish Academy of Scienceswhich selects recipients of the award.
Krugman has evolved a new trade theory which helps determine the effects of free glbal trade and globalisation as well as the factors that lead to world wide urbanisation.According to Krugman countries can gain a competitive advantage by providing subsidies to important and key industries.
The research and findings of Krugman help us in comprehending and understanding how development of large scale industries and and largescale production for global markets attracts more and more people to to cities apart from bringing aboutsubstantial increase in wages of workers.Migration of workers to cities for employment which are centres of large scale production brings about urbanisation.
Robert Solow a 1987 Nobel laureatewho was professor to Krugman in the past has remarked that this award is clearly for Paul Krugman the economist and not to Paul Krugman the journalist or political critic.
Significant Contribution.
Paul Krugman has made significant contribution to fundamental economic theory.He has through his analysis explained how world trade can be dominated by countries that undertake both import and export of similar products.Prior to Krugman's theory all earlier models for world trade sought to explain why countries trade in spite of being different.Krugman was one of the first to realise that those kinds of models explained only about half of the trade in the world.
Tom Pruse Professorof International Economics at Rutgers University in New Bunswick ,NEW JERSEYremarked that earlier theories did not explain world tradein entirety.Krugman fulfilled this shortfall and he expalined why it makes a difference when countries that are similar undertake trade as opposed to countries that are different.Such tarde facilitates specialisation and large scale production which result in lower prices and greater diversity of commodiies.
Unfettered Free Trade
Krugman is a critic of unfettered free market policies.In his view unfettered free trade policies can cause havoc in different countries.He has thus stressed the need for some sort of regulation as well.Krugman has focussed on globalisation and trade in developing world.
Krugman has evolved his approach based on the premise that many goods and services can be prduced more cheaply in long series and in larger quantities ,a concept generally being referred to as economies of scale.His theory explains that globalisation tends to increase the pressures on urban living because specialisation attractspeople to these centres of concenration through processes that result in ''regions being divided into high technology urbanised ones and less developed periphery''
Traditional theories assumed that differences between countries explain why some countries export agricultural goods and agricultural products while others export industrial products.Such a process holds out the prospect that some countries can improvetheir positions through a process of complimentarity.Krugman's theory explains why world trade is in fact dominated by countries which not only have similar conditions but also trade in similar products.
Krugman's theory seeks to explain that globaliastiontends towards concentration both in terms of what a manufacturing base makes and where it is located.Krugman also focussed on increasing returns explaining that their absence is a key reason for uneveneconomic develpment.Prof Krugman has won the Nobel Prize for evolving and formalising theories relating to industrialistion and increasing returns and economic geography.
The trade theory particularly the theory relating to analysisof trade patterns and location of economic activity was given a new dimension by Krugman.His work in the area of classical studies of forces such as world trade has enhanced the scarcity value of his work according to Edmund Phelps ,a 2006 Nobel Lureate .
Dilating on the current global economic down turn and financail crisis Krugman has opined that economic recovery requires relearning lessons from historical crises particularly the lesson that financail system can not be left completely to the whims of the market.Krugman has thus emphasised the need for some sort supervision over and regulation of markets in lieu of unfettered free market policies.