Choice Behavior Perspective On Heterogeneous Enterprise Space

In this paper Melitz model of monopolistic competition with heterogeneous firms integrated into New Economic Geography FC model, we show that selection effect means relocating to the big region is most attractive for the most productive firms,this partly indicates that the estimates of agglomeration economies may not be accurate; sorting effect means a regional policy induces the lowest productivity firms to move to the periphery.This partly explains why a regional policy did not improve the welfare state.In fact, enterprises are not simply migrate,they are also likely to enter or exit the industy.This paper based on the perspective of the enterprise heterogeneity studied the spatial selection and traditional selection in an united model. The model was extended to allow firms can exit unprofitable markets. Studies show that the assume that enterprises migrate first and need time to entry or exit is more in line with reality.So the pressure of Home Market Effect can usually be released by the two ways.At the same time our paper shows that free trade is important for relocation of firms,free trade strengthens the selection effect and sorting effect and that the effect of policies is non-liner.The subsidies will be work until it reach a certain intensity.This partly explains the phenomenon that the share of industry of central and western regions are increased along with the continuous introduction of government policies in our market integration.At last after the model this paper analyzes the Chinese firm’s heterogeneity and regional development status and puts forward some recommendations for government policies.