Last year Paul Krugman was awarded the Nobel Memorial Prize in Economic Science for his analysis of trade patterns and location of economic activity. The paper deals with the significant elements of his scientific works, the basic assumptions incorporated in the models, particularly economy of scale and imperfect competition. The new approach to trade theory is introduced based on the explanation why intra-industry trade occurs between similar countries. The core-periphery model is considered as a starting point of the new economic geography with far-reaching consequences for further economic research. Other contributions to economic theory are mentioned such as the analysis of international monetary policy, the study of currency crises, target zone of exchange rates etc.
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