The European Union (EU) is one of the largest recipients of outward foreign direct investment (OFDI) from emerging economies. We apply a discrete choice model to analyze the location choice of emerging market firms in the EU27. 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 for technological catching-up for emerging market firms. Our results indicate that emerging market firms’ location choices differ from the choices of other investors. Emerging market firms place, on average, a higher value on urbanization, diversification economies and sector-specific human resources. However, we find evidence for heterogeneity in the location choices of emerging market firms depending on the home region and the sector of investment.
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