American Economic Review 2009, 99:3, 561â571 http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.3.561 By Paul Krugman* Thirty years have passed since a small group of theorists began applying concepts and tools from industrial organization to the analysis of international trade. The new models of trade that emerged from that work didnât supplant traditional trade theory so much as supplement it, creating an integrated view that made sense of aspects of world trade that had previously posed major puzzles. The ânew trade theoryââan unfortunate phrase, now quite often referred to as âthe old new trade theoryââalso helped build a bridge between the analysis of trade between countries and the location of production within countries. In this paper I will try to retrace the steps and, perhaps even more important, the state of mind that made this intellectual transformation possible. At the end Iâll also ask about the relevance of those once-revolutionary insights in a world economy that, as Iâll explain, is arguably more classical now than it was when the revolution in trade theory began. I. Trade Puzzles In my first year as an assistant professor, I remember telling colleagues that I was working on international trade theoryâand being asked why on earth I would
American Economic Review – American Economic Association
Published: Jun 1, 2009
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