What does location choice reveal about knowledge-seeking strategies of emerging market multinationals in the EU?

• The paper applies different discrete choice models to analyze the location choice of 4555 emerging market firms in sub-national regions of the EU.
• Emerging market firms’ location choices are positively affected by agglomeration economies and knowledge externalities.
• We can identify differences in the valuation of various sub-national location factors as well as differences in the substitution pattern between alternative regions for emerging market firms.
• Paper generates evidence as to how emerging markets use outward foreign direct investment as means to augment owner specific advantages.

The European Union is one of the largest recipients of outward foreign direct investment from emerging economies. We apply different discrete choice models to analyze the location choice of 4555 emerging market firms in 93 sub-national regions of the European Union. In particular, we test to what extent these firms’ location choices are related to agglomeration economies and knowledge externalities, because these have been suggested as potential sources to propel learning and technological catching-up. Our results indicate that emerging market firms’ location choices are positively affected by agglomeration economies and knowledge externalities. In addition, we can identify differences in the valuation of various sub-national location factors as well as differences in the substitution pattern between alternative regions for firms originating from emerging markets. The evidence supports the argument that emerging market firms use outward foreign direct investment to augment ownership specific assets.