In Part 3, we introduce our empirical strategy, discussing our sample, estimation technique, as well as the ways in which we operationalize our main independent and control variables. We then discuss our results and their implications. In the concluding section, we summarize their main findings and highlight how they contribute to scholarly and policy-making debates on the determinants of FDI from emerging markets and on the role of international institutions in attracting foreign investment.

# **2. Literature Review**

In examining the ways in which IEAs interact with distance to influence the investment decisions of EMNEs, we draw upon and contribute to three bodies of literature: work on FDI from emerging markets, on the role of distance in the context of increasing global economic integration, and on international economic agreements and their effects on FDI.

# _2.1. FDI from Emerging Market Multinationals_

In the last two decades, developing and emerging economies have become increasingly salient players in the global economy. Apart from capturing growing shares of global FDI flows, firms from the South have emerged as important sources of outward investment. Already in 2005, according to UNCTAD’s _World Investment Report_ , outflows from developing economies were about three times world FDI flows 25 years before, reaching about $130 billion. In 2011, these flows added up to $384 billion, accounting for more than 20% of total FDI flows. In terms of stocks, in 2011, firms from developing economies accounted for 1 of every 5 dollars of equity held by multinationals worldwide, almost tripling the same ratio during the early 1990s.

A growing body of literature looks at the drivers and characteristics of outward FDI from emerging and developing economies. Dunning, Kim, and Park (2008) compare contemporary TNCs from emerging markets with traditional developed country corporations. They find evidence of a new wave of “asset-augmenting” FDI in the 2000s, which contrasts with the primarily market-seeking and efficiency-seeking FDI from developed economies in the 1960s-1980s. Whereas the traditional developed-country companies generally invested abroad to exploit ownership-specific advantages, developing country MNCs tend to rely instead on country-specific advantages, particularly in the services sector. Because of their limited assets and the growing competitiveness pressures they face, firms from emerging markets have incentives to access “created” assets such as brands, distribution networks, and managerial skills, in foreign countries through M&As or other types of asset-augmenting FDI.<sup>4</sup> Scholars have also highlighted the differences between the current wave of outward FDI from emerging economies and two previous waves of outward investment from the developing world. The first wave (1960s to mid-1980s) was driven primarily by the market- and efficiency-seeking strategies of Latin American MNCs. The second wave, beginning in the mid-1980s, was dominated by Asian MNCs, seeking to gain access to the rapidly expanding newly-industrializing economies in East Asia, as well as to increase efficiency by drawing on cheaper labor in other less developed economies.

In the third wave, beginning in the 1990s, there has been a resurgence of OFDI from Latin America and Asia, as well as growing flows from the Russian Federation and South Africa. While access to markets and inputs

> 4 Examples include several M&As, including Lenovo’s purchase of IBM’s PC business and Tata’s acquisition of the steel giant Corus.

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