Abstract: Debate on how Emerging Market (EM) firms may use outward foreign direct investment (OFDI) as a vehicle to enhance innovation performance has not been conclusive. On one hand, dynamic capability literature supports that these firms may build up product development experience (PDE) via OFDI for improving innovation performance. On the other hand, path dependence argument suggests that these firms PDE is domestic market-specific, therefore, PDE accumulated may constrain their capability of using OFDI opportunities for improving innovation performance. We argue that PDE breadth and depth affect the relationships among PDE, OFDI, and innovation performance. Using panel data of 80 Chinese firms we find that PDE depth has a significant negative effect on domestic innovation performance of Chinese outward investors. Our finding provides specific conditions for when the path dependence effect holds.