The impact of experience on the agglomeration of cross-border investments within a region: The case of private equity in emerging markets

Abstract

Previous research on cross-border investments has shown the importance of choosing the right focal market-a target country in which a firm invests. International business scholars have also noted that cross-border investments frequently concentrate in regions. However, the factors affecting investment agglomeration within a region have yet to be determined. Building on theoretical insights from the Uppsala internationalization model, we propose two effects that can significantly impact investment agglomeration within a region: (1) the focal effect, linked to cumulative investment experience in a focal market, and (2) the neighborhood effect, related to cumulative investment experience in the region where a focal market is located. We also examine how the size of these effects is moderated by cross-national distance. To test our theoretical arguments, we use a dataset of private equity firms that made investments in three emerging market regions-Latin America, Southeast Asia, and Eastern Europe-from 1996 to 2011. The results support all our hypotheses. We contribute to the literature on regional internationalization by providing new insights that complement the Uppsala internationalization model.