Enterprise Migration Model

Through the application and expansion of a simple new economic geography model, we analyze the relocation choices of firms from two countries differing in market size under different circumstances.When there are no restrictions that governments maximize the employment rate, firms will agglomerate in the country whose labor resources are abundant relatively due to relaxing restrictions of capital flow. The degree of agglomeration will become more intense with the increasing of the rate of labor of that country to whole world and when the rate achieve some special levels, there will be full agglomeration in that country. The increase of trade freeness will further the agglomeration in the country whose labor resources are abundant relatively when restrictions of capital flow are relaxed. It means that the openness of consuming markets will urge the relocation of the productive sectors. The increase of global labor-capital ratio also will further the agglomeration in that country but the speed of agglomeration will decelerate though the increase of degree of agglomeration, when global labor-capital ratio achieve some special levels.Based on the analysis of indirect utilities of workers and capitalists under different circumstances, we can find the preferences to the firms'relocation of the factors owners. We include that:the workers of the country whose labor resources are abundant relatively will prefer the circumstance that restrictions of capital flow are relaxed because of the gains brought by firms relocation; conversely, the workers of the country whose labor resources are barren relatively will prefer the circumstance that restrictions of capital flow are rigid because of the loss brought by firms relocation.The capitalists of the country whose labor resources are abundant relatively will prefer the circumstance that restrictions of capital flow are relaxed at the beginnings and then turn to the circumstance that restrictions of capital flow are rigid with the increasing of the rate of labor of the country to whole world. It mainly because that the negative income effect brought by firms agglomeration exceeds the positive price index effect gradually with the increasing of the rate of labor of the country to whole world. Conversely, the capitalists of the country whose labor resources are barren relatively will prefer the circumstance that restrictions of capital flow are rigid at the beginnings and then turn to the circumstance that restrictions of capital flow are relaxed due to the contrary reasons.After we bring government factor to the model, the policies that maximize the employment rate will become restrictions to the firms'relocation. When the labor resources of certain country are abundant relatively, the degree of agglomeration in that country with policies restrictions will weaker than that without policies restrictions. It also means that the policies assure the positive effect of full employment but lead to the negative effect of capital wasting. Conversely, when the labor resources of certain country are barren relatively, the policies will decrease the firms migrating to foreign and that country will get two positive effects of full employment and restricting firms'relocation.