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Juration Doctorate Honoris Causa Professor Paul Krugman

Vice President of the Republic, Dr. Margarita Cedeño
Minister of Higher Education, Science and Technology, Dra. Ligia Amada Melo
Madam President of the Board of Regents, Claudia de Los Santos
Members of the Board of Regents and the Academic Council Founders, Past rectors, Professors and Collaborators of INTEC
Honorable Ministers, public officials and rectors of other universities
Distinguished Professor Paul Krugman
Ladies and Gentlemen

In 1977, the Royal Swedish Academy of Sciences awarded the Nobel Prize in Economics to Professor Bertil Ohlin, for his contributions to the theory of international trade and the analysis of capital flows between the markets of different economies. This recognition expressed the appreciation of the world academic community for the work that Ohlin had developed in 1933, as an extension of the model proposed in 1919 by his mentor Eli Heckscher, who in turn had been based on the ideas postulated in 1815 by David Ricardo. . For a century and a half, this current of thought constituted the predominant model, and practically undisputed, to explain the patterns of trade between countries.

Interestingly, as Professor Ohlin was receiving his well-deserved recognition, a young PhD student at the Massachusetts Institute of Technology (MIT) was writing a series of papers that would directly and immediately change the way economists think about international trade. , and that in the longer term, they would at least have a marked influence on how the profession approached a host of other issues. His conclusions were later collected in a seminal article that, irony of fate, was published in 1979, the year Bertil Ohlin died, thus serving as a metaphorical illustration of the incessant passing of generations in scientific thought.
This morning, the Instituto Tecnológico de Santo Domingo (INTEC) has the privilege of receiving this young man, now a professor and thirty-six years older, to award him an honorary doctorate as a token of admiration for the academic merits accumulated throughout his life.
Professor Paul Krugman, welcome to INTEC!
The trajectory of our guest is widely known and it would be a futile exercise to broach it extensively at this point; however, I request your permission to concisely describe the essence of your contributions, especially for the benefit of those less familiar with the economic debate. At the time when the young Krugman began his career, conventional theory explained international trade in terms of some form of comparative advantage: that is, it was understood that each country exported those goods that in the absence of trade it could produce at a lower cost. relative, either due to differences in the productivity of their industries or due to differences in their primary endowments of productive factors. In the latter case, for example, each country would have an advantage in the production of those goods whose production requires a more intensive use of the most abundant productive factor in that country.
The implications of this theory are of great relevance, since they not only have to do with the probable pattern of exports and imports, but also with the relative prices of final goods, with the remunerations of the different productive factors and, ultimately, with the distribution of income among the owners of land, capital and labor. Likewise, the theory has implicit specific recommendations on the distribution of production between industrialized and developing countries, and on the benefits and costs of the formation of free trade blocs between groups of countries. In a way, therefore, the so-called Heckscher / Ohlin model is not just a theory of trade, but a theory about the distribution and growth pattern of countries.
Despite the great virtues of this approach, in the XNUMXs it was already clear that it was unable to explain some characteristic features of international trade, whose behavior systematically deviated from the predictions of the theory. In particular, a large part of the trade flows seemed to be almost fortuitous in nature, without showing an obvious association with the productive factor endowments of the countries. In fact, the most disturbing aspect of the world trend was the expansion of trade between countries with very similar endowments, which also exported and imported similar products.
These facts were crying out for a new theoretical explanation, and that was precisely the pioneering contribution of our award-winner. In essence, the young Krugman's work departed from tradition by admitting the existence of economies of scale in firms and preferences for variety in consumers, thus developing a model in which the costs of production of each firm are reduced to as your production volume increases. This gives firms a certain monopoly power, in contrast to the perfect competition assumption on which conventional models are based. Within this framework, countries with the same resources and the same technology end up specializing in the production of different products, and marketing products from the same industrial branches among them, to satisfy consumer demand for variety.
Young Krugman's seminal article achieved immediate notoriety, for reasons that are now apparent with the benefit of hindsight. On the one hand, it proposed a new perspective on a highly relevant topic; and, on the other hand, the author had managed to avoid the usual analytical complexities of models of imperfect competition, in such a way that the results arose almost by gravity, from a few intuitive assumptions and using almost elementary mathematical tools. And what was more impressive, the article had the virtue most appreciated by all doctoral students throughout history: it was a short article!
That pioneering work was just the first in a long sequence of momentous contributions by now Professor Krugman. In particular, twelve years later a new article would appear that would end up creating a new sphere of work over the following years. As many may have perceived, I am referring to the publication in 1991 of the article on increasing returns and economic geography, in which the determinants of the movement of people and firms through the territory were addressed, and the basis for an explanation was laid. ingenious of agglomeration patterns and spatial organization of cities, and of the relationships between market size, migration patterns, and wage levels. The literature derived from that study, which is enormous, came to be identified as the New Economic Geography.

The value of these contributions by Professor Krugman was recognized by the 1991 John B. Clark Prize, a distinction awarded by the American Association of Economists to influential professionals under the age of 2008, and the XNUMX Nobel Prize in Economics. . However, his career has other contributions that, by themselves and even in the absence of the previous ones, would make him worthy of equal recognition. Among them, I will limit myself to mentioning his contributions in the field of international monetary economics, such as his analysis of financial crises and his model (today considered canonical or exemplary) on the behavior of exchange rates under a reference zone scheme. This leads me to recall the insights of Professor Avinash Dixit, when he says the following words: “Krugman's contributions to the development of the intra-industry trade model based on monopoly competition was a remarkable achievement for such a young person; the only thing even more remarkable is that someone stays at that same level throughout their career ”.
On the other hand, Mr. Dixit has also given us an excellent description of Professor Krugman's style, in the following text that I freely translate:
“Krugman selects an important topic and builds a small model through which a new and unexpected result is obtained that attracts everyone's attention. Generally, the reaction of other economists is a mixture of admiration and irritation. The model is incredibly clear and simple, but it leaves some loose ends and relies on very specific assumptions that other economists feel compelled to test. In the process, some new ideas emerge, but as a general rule the original idea is confirmed, with a small detail: Krugman's treatment goes to the heart of the problem with the finesse of precision surgery, while the work of the followers is very similar to an open chest surgery that requires rupturing several ribs ”.
Professor Krugman himself has raised a "personal manifesto" in which he presents the approach followed by his research:
"The essential purpose of this type of economic analysis (he tells us) is to develop intuition and acquire a renewed vision of the subject under consideration. The greatest value is often in providing an appropriate language to discuss the problem, and that intention brings with it a strong preference for maximum simplicity possible. "
And consequently, Professor Krugman tells us, "the ultimate sophistication is often finding a way to express novel ideas without using anything more than a diagram or a simple numerical example."
In sum, Professor Krugman's work will long remain a model of relevance and conciseness, and as far as my personal knowledge reaches, its influence and elegance are only matched by a few masterpieces, such as John Hicks' IS / LM model. , Robert Solow's growth model, Robert Mundel's monetary model, Rudiger Dornbusch's over-adjustment rate model, and Paul Samuelson, Maurice Allais, and Peter Diamond's model of overlapping generations, among a few others. The general judgment is that it is very difficult to study an article by Krugman without being immediately struck by a disturbing question: Why don't things like this occur to me?
In closing, let me recall that in addition to being a virtuous researcher, Paul Krugman has been a dedicated teacher, successful popularizer, and influential columnist. As a professor, he has taught at Yale, MIT, the London School of Economics and Stanford, before joining Princeton University and, in recent years, transferring to CUNY. As a popularizer, he has written several compulsory reference books, including the treatise on International Economics used as a text in a good part of the world's universities. As a columnist, he has been repeatedly considered one of the most important political and economic analysts in the United States and the world. In recent years, he has been a severe critic of austerity policies and has advocated increasing public investment as an instrument of job recovery. In this sense, you may or may not agree with their positions, but there is no doubt that they are always stimulating for a good reflection on the need for substantive changes in economic policies, if we want to ensure that they comply with the objective of improving the living conditions of the population.
For all reasons, INTEC has considered that Professor Paul Krugman exemplifies the values ​​of our institution, and welcomes him as a new Doctor Honoris Causa with a feeling of great admiration and respect. We celebrate with emotion their professional contributions, which are a source of inspiration for the university community. And, above all, we value your commitment to the academic spirit, which is clearly reflected in your following words, with which I close my speech:
“I know that many people consider economics to be a boring topic, but those who think so are wrong. On the contrary, I know of nothing as exciting as discovering that the great events of history, the forces that determine the fate of empires and the fate of kings, can sometimes be explained, predicted, and sometimes even controlled by a few symbols in a sheet of printed paper. We all want power, we all want to be successful, but in the end the greatest reward is the simple joy of having understood the way things work ”.
Thank you very much, Professor Krugman, for joining us on this joyous day for our institution.