Sat, Oct 18, 2008 page8

• Krugman: pioneering economist and scholar

  • By Wang Jue-shyan 王智賢
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  Since the announcement that Princeton University academic and New York Times columnist Paul Krugman had been awarded the Nobel Prize for economics, he has been widely praised for his efforts in academia, with various publications running articles on his academic achievements and his work as a columnist.

  Krugman was awarded the prize mainly for opening up new areas of research into international trade theory. Most traditional trade research theories and methodologies start with the assumption that economies operate in a system of perfect competition, that production is of a fixed scale and that each country mainly exports goods for which they have a comparative advantage in producing.

  This means that each country starts out with a comparative advantage to engage in an exchange of products for other products from other countries that will increase the wealth of both trading partners.

  At the end of the 1970s and the start of the 1980s, Krugman analyzed the characteristics of economies of scale. Krugman also analyzed markets characterized by imperfect competition, and in doing so developed a lot of new avenues for research.

  For example, Krugman found that when a product enjoys economies of scale, the average cost of producing the product decreases as the size of the market increases.

  This means that manufacturers entering the market and investing in production at an earlier stage will enjoy a greater competitive advantage.

  Even if manufacturers in other countries possess an advantage in production technology, they will not be able to gain a market advantage if they enter the market at a later stage. Krugman’s analysis of imperfect market competition also provides a basis from which product differentiation can be analyzed. It also shows that there will be more differentiated products as the scale of the market broadens.

  This means that consumers enjoy a choice of brands. In other words, international trade gives consumers more diversity.

  In his research, Krugman employed many hypotheses that traditional trade theory did not use. This granted researchers new ways of looking at economic and trade issues. The theories he developed will have profound and long-lasting effects on research into competing products, trade within industries and strategic trade behavior in countries that provide export subsidies.

  Krugman also uses simple language when writing books on economic analysis that ordinary people can read. Many of these books have been translated into Chinese in Taiwan.

  Krugman’s research abilities and the commitment he displays to academia are something to be admired among today’s economists.

  Krugman has also criticized governments over the recent financial crisis and has come up with suggestions. I hope that he can continue to generate policy suggestions because this would help minimize the economic risk that countries around the globe are facing now and in the future.

  Wang Jue-shyan is an associate professor of public finance at National Chengchi University.

  TRANSLATED BY DREW CAMERON
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