From the The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel‘s description of Krugman’s scientific contributions:
Trade and Geography — Economies of Scale, Differentiated Products and Transport Costs
By the late 1980s, researchers had begun to integrate economies of scale into general equilibrium models of location and trade, thereby giving precision to the verbal analyses of earlier researchers and adding important new insights. In the resulting work, now commonly known as the new economic geography, economic geographers made use of the new tools, along with economists who took a renewed interest in the field. Several researchers took part in these developments, but the most influential contributions were made by Paul Krugman.
Krugman has published a large number of important articles and monographs in the fields of both trade and geography. In particular, he made the initial key contributions. He wrote the first article in the trade theory, soon followed by another influential paper that extended his initial analysis (Krugman, 1979a and 1980). Further, Krugman (1991a) is commonly viewed as the starting point of new economic geography. In fact, the seeds of the new economic geography can already be found in his 1979 (a) article which, in its final section, argues that patterns of migration can be analyzed within the same framework as the new trade theory.
While this article had an immediate impact on the trade literature, it would take more than ten years for the final section, on migration and agglomeration, to have an influence on the geography literature – kindled by Krugman himself, in the 1991 (a) paper.
As an economist who received his training in the mid-to-late 1980′s, I can attest to the excitement that Krugman’s work engendered in the trade literature. As a newly minted PhD teaching at UC-Santa Cruz, I saw how the undergraduate trade textbooks were transformed from descriptions of Ricardian, specific factor, and factor proportion models, and partial equilibrium analyses of tariffs and quotas, to ones that could also formally address issues of intra-industry trade, and the role of internal and external economies of scale.
Commentators remarking on the fact that Krugman has been a strong critic of the Bush Administration (, and particularly ) are right, but miss the point. Krugman was awarded the prize for his academic work on trade, geography (and international finance), and not for his political views — just as George Stigler won for his academic work on industrial organization and regulation. And Finn Kydland and Ed Prescott for real business cycle theory and time consistency (none of these would be construed as forwarding left-wing theses). Hence, those who argue Krugman’s popular writings explain his selection simply do not know what they’re talking about. Among academic economists, the question for years was not whether Krugman would get the prize, but when. Now we know the answer. Congratulations to Paul Krugman!