remain the main motives, asset-augmenting strategies have increased in importance. During this period, MNCs from emerging markets have relied on outward investments to access technology, R&D and marketing capabilities, brands and managerial competencies (Gammeltoft 2008; Gammeltoft and Hobdari 2017; Fey et al. 2016). In terms of destinations, according to Gammeltoft (2008), third wave OFDI is increasingly global and reaching both developed and developing countries, particularly in the manufacturing sector.<sup>5</sup> Finally, although up to 2001, FDI from emerging markets was mainly in the form of greenfield investment, M&As have become more common (Dunning et al. 2008).

We add to this literature in two main ways. First, most of the available work on EMNEs has relied primarily on case studies of specific firms, sectors, or countries. By contrast, we use data from a survey of over 700 firms from four emerging economies, which includes questions about the motivations, incentives, and geographic location of these firms' decisions. Second, research on EMNEs has largely ignored the role of non-economic factors in shaping these firms’ decisions. Are EMNEs concerned about political factors, such as institutional and regulatory quality in host countries? Do they consider whether potential destination markets participate in international economic agreements? It has been argued that MNCs from emerging economies may possess “adversity advantages,” derived from their experience operating in a business environment characterized by corrupt officials, regulatory instability and weak institutions (Contessi & ElGhazali 2010). Experience dealing with such challenging conditions may make these firms less worried about political risk and instability, and by the same token, less responsive to the presence of BITs and PTAs. We explore these issues empirically using data from the survey of potential investors.

# _2.2.Distance and FDI_

We also engage the discussion in the international trade and investment literatures on the so-called “distance puzzle.” Conventional wisdom holds that globalization has irreversibly brought countries together, facilitating international trade and investment. The fall in communication and transportation costs in recent decades, a central element in the transaction costs that are captured by distance, has led to the “death of distance” and made the world “flat” (Friedman 2005). Yet, empirical studies have failed to show the purported declining distance elasticity of bilateral international trade (Disdier and Head 2008; Carrere, de Melo, and Wilson 2011). Instead, studies have found that the burden of distance of trade may be increasing.

A similar distance puzzle has been identified in FDI patterns. The empirical literature has shown that distance has a negative effect on the investment decisions of multinational firms. Gravity-type of models tend to find that distance, capturing informational gaps and asymmetries as well as cultural differences, hinders FDI flows between two countries (e.g. Di Giovanni 2005; Portes and Rey 2005; Head and Mayer 2013; etc.). For example, Ferrantino (1992) finds that transaction costs associated, inter alia, with geographic and cultural barriers, largely explained the fact that third world multinationals invested in other developing countries, as opposed to a preference for low-income or labor-intensive markets.

These findings appear to go against the “FDI versus exports” approach, according to which firms are more likely to expand production across borders, the higher the transportation costs and trade barriers. Moreover, as information and communications technology facilitates the circulation of ideas and knowhow, firms should find investing and producing goods abroad more efficient than exporting them. Yet, as

> 5 FDI in services, however, continues to exhibit a relatively higher regional bias. Asian MNCs appear to be more globalized than Latin American MNCs, they are still more concentrated on neighboring countries.

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