Jurisdiction Shopping and Foreign Location Choice: The Role of Market and Nonmarket Experience in the European Solar Energy Industry

Abstract

We investigate how industry-support policies targeted at specific sectors influence foreign investment location choices. We argue that firms engage in jurisdiction shopping, selecting to invest in countries with more generous policy support, but that this effect varies markedly across firms. Our theory suggests that firms’ nonmarket experience positively moderates the effect of policy support on location choice, while the moderating effect of market experience should be less impactful. We further argue that, depending on the nature of their nonmarket experience, firms may become less attracted to places with more generous policy support. We find support for our predictions by examining foreign investments of firms entering the solar energy industry in the EU during 2004-2013. We discuss implications of our study for international business, research on public policy and strategy, and the energy transition.

Keywords: market experience; nonmarket experience; location choice; solar energy; industrial policy; energy transition.

JEL Classification: M10; M16