Nobel Laureate has clear impact on CBS research

2008: Professor Paul Krugman from Princeton University receives the Nobel Prize

On 13 October 2008, Professor Paul Krugman from Princeton University was awarded the Nobel Prize in Economics for pioneering the New Trade Theory. This new theory explains trade patterns, the localization of companies, and migration patterns.

It explains why countries specialise in production of different versions of the same product. The building blocks of Krugman’s theory is economies of scale (it is more efficient to produce large amounts of a product) and the consumers' preference for variety – to have a choice.

At the CBS Department of Economics, several researchers are working with the development of Paul Krugman's theories.

Skilled labour: An advantage to the labour market

In an analysis of Danish export companies, Professor Jan Rose Skaksen applies Krugman’s theories on the importance of increasing returns to scale, imperfect competition, and product differentiation.

The analysis has been published in the Journal of International Economics and shows that export companies, which use skilled labour intensively, fare better in the global competition than other export companies. Jan Rose Skaksen argues that it is because these firms specialise in producing varieties of products that are very different from those produced by companies in low wage countries.

Professor Anders Sørensen has analysed how research and development interact with skills enhancement and create economic growth. Anders Sørensen is using a dynamic version of Paul Krugman’s model of imperfect competition. This research has been published in the Journal of Economic Growth.

The effect of the Danish equalisation policy?

Research degree student Lars B. Termansen has recently submitted a thesis titled ‘Regional General Equilibrium Models for Denmark”. The models continue the development of Krugman’s model of New Economic Geography to analyse the Danish regional equalisation policy of transferring public funds from core to periphery. Termansen finds that public transfers crowd out production in the periphery, thereby reducing the effects of the transfer.