After nearly 30 years, the Swedish Academy has returned to
international trade awarding the Nobel Prize to Princeton
economist Paul Krugman. Earlier, in 1977, the award had gone to
two giants, Bertil Ohlin and James Meade, whose brilliant work
formed the foundations of trade theory as it was taught when I
came to Princeton to do my Ph.D. in 1974. Krugman, no less a
giant, revolutionized the field. Until the end of the 1970s, the
Heckscher-Ohlin theory for which Bertil Ohlin won the prize–Eli
Heckscher died before the Nobel Prize in economics was
instituted–dominated the field. This theory explained well why
labor-abundant countries such as South Korea and Taiwan would
export labor-intensive products such apparel, toys and footwear
and capital-abundant countries such as the United States would
export machinery and aircraft. But it could not satisfactorily
explain the two-way trade that was widely known to exist: Many
countries exported automobiles and televisions, but they also
imported them. The Heckscher-Ohl