Paul Krugman of Princeton University developed a new theory to answer questions regarding the effect of free trade and globalization and the driving forces behind worldwide urbanization, the foundation in Stockholm said in a news release. The Royal Swedish Academy of Sciences awarded the prize.
Krugman's approach is based on the economies-of-scale concept that production becomes more efficient as the number of goods produced increases. His theory explains why global trade is dominated by countries that not only have similar conditions but also trade in similar products.
Under his theory, this kind of trade allows for specialization and large-scale production, resulting in lower prices and diversity of commodities.
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