When appium retrieves the apk, does it download the apk onto the local box (appium server), or does it download the apk from the emulator device and then installs it? This is assuming you have appium server and the emulator on two separate machines.
Appium is just a middleman which sends the command in a json, like for installing your apk it just runs adb install blah blah commands.
For more details, check your appium logs during installation of apk
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In most cases the APK will live on your local machine and you provide Appium the path to the APK as a capability. It will then install the APK on the target device if it does not exist or if an older version exists.
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For those who might be interested, I have confirmed that the APK will get downloaded locally onto the Appium server instance as a tmp file, and then uploaded to the mobile emulator to be installed.