Stockholm - The 2008 Nobel Prize for Economics was awarded Monday to Paul Krugman of the United States, the Royal Swedish Academy of Sciences announced, citing his work on international trade and economic geography. The academy cited Krugman for his "analysis of trade patterns and location of economic activity" in awarding him this year's prize.
Krugman launched his model in 1979, offering insights into effects of free trade and the influx from rural areas to cities, Professor Peter Englund, secretary of the Prize Committee, said.
Implications of the theory are used by, among others, the World Trade Organization, Englund said.
Krugman, born 1953, is professor of economics and international affairs at Princeton University, New Jersey. He also contributes articles to the New York Times and maintains a blog.
"I'm still quite stunned," Krugman told reporters by telephone minutes after the announcement.
"I am still thinking 'I don't have time for this'," he said, referring to previous appointments and meetings.
Minutes after learning of the award, he said he took a quick shower, and phoned his wife and parents with the news.
Asked about the ongoing economic turmoil, Krugman admitted "this is terrifying" but welcomed efforts over the weekend to solve the crisis, noting efforts of the Group of Seven in Washington as well as member countries of the Euro-zone meeting in Paris.
Krugman said he was "pleased that policy has finally started to make some sense," adding he had never thought that he in his lifetime would experience events that bear such resemblance to the Great Depression.
The economics laureate said that despite the positive signals, we "probably will have a recession and a long one."
Krugman said that he aimed to continue to work with his research, adding that the prize would likely increase his "visibility."
Krugman's contributions and theory built on several observations about modern economies, Englund, a professor at the Stockholm School of Business, said.
One was that "the production costs for most goods tend to fall significantly with the scale of production," Englund said, and that consumers favour variety.
Smaller economies will be integrated in the global economy, and each country will specialize "in a limited number of products that it will export to the world market, but at the same time importing quite similar goods," Englund added.
His "second contribution was to bring transport costs into trade theory," Englund said.
In 1991, Krugman also outlined a theory on economic geography with implications for migration trends, andexplaining how transport costs come into play, the academy said of the so-called core- periphery model.
The prize - formally called The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel - last year was awarded to three US economists, Leonid Hurwicz, Eric Maskin and Roger Myerson.
The prize carries an award of 10 million kronor (1.5 million dollars) and will be handed to Krugman at the annual Nobel prize ceremonies December 10 in Stockholm.
Swedish industrialist Alfred Nobel, the inventor of dynamite, endowed awards for medicine, physics, chemistry, literature and peace that were announced last week. The peace prize is presented in Oslo.
