Paul Krugman
Citation: For his analysis of trade patterns and location of economic activity.
The key idea
New trade theory: increasing returns and product differentiation cause trade between similar countries in similar goods. Economic geography: agglomeration economies cluster production geographically.
The explanation
Krugman's 1979-1980 papers explained why most trade is between similar rich countries trading similar goods (not Heckscher-Ohlin's labour-intensive vs capital-intensive). His economic geography (1991) showed how transport costs, increasing returns, and labour mobility produce 'core-periphery' patterns where activity clusters in some regions and not others.
Why Africa should care
Economic geography is the analytical frame for African urbanisation: Nairobi, Lagos, Johannesburg, Cairo are core-periphery cores absorbing rural and small-town labour. The AfCFTA's potential to generate intra-African trade depends precisely on Krugman-style intra-industry trade emerging — not just on comparative advantage. Special Economic Zones (Konza, Naivasha, Mauritius) are explicit attempts to engineer agglomeration externalities.
How to use it
When evaluating an industrial-policy or SEZ proposal, ask: what agglomeration externalities is it trying to capture, and is the location credibly large enough to trigger the threshold effects Krugman's models require?
Canonical works
- Paul R. Krugman (1979) "Increasing Returns, Monopolistic Competition, and International Trade" Journal of International Economics
- Paul R. Krugman (1991) "Increasing Returns and Economic Geography" Journal of Political Economy
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