FT.com / World - Krugman wins Nobel prize for economics

US economist Paul Krugman, a critic of the Bush administration for policies that he argues led to the current financial crisis, won the 2008 Nobel prize for economics, the prize committee said on Monday.

The committee awarded Krugman the prize for work that helps explain why some countries dominate international trade.

Krugman, speaking by telephone to a news conference, was caught on the hop by the news.

"I rushed to take a shower so that I could take part in the press conference. I called my wife and I called my parents. I've not yet managed to get myself a cup of coffee," he said.

Krugman has been heavily critical of US President George W. Bush's administration.

The Royal Swedish Academy of Sciences said the prestigious Skr10m ($1.4m) award recognised Krugman's formulation of a new theory that addresses what drives world-wide urbanisation.

"He has thereby integrated the previously disparate research fields of international trade and economic geography," the committee said.

"Krugman's approach is based on the premise that many goods and services can be produced more cheaply in a long series, a concept generally known as economies of scale," it said.

"Meanwhile, consumers demand a varied supply of goods. As a result, small-scale production for a local market is replaced by large-scale production for the world market, where firms with similar products compete with one another."

Krugman's theory clarifies why trade is dominated by countries that not only have similar conditions but also trade in similar products. The committee cited Sweden as an example as it both exports and imports cars.

"This kind of trade enables specialisation and large-scale production, which result in lower prices and a greater diversity of commodities."