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.