We offer an alternative explanation for follow-the-leader behavior in foreign investment decisions based on Bayesian learning by rival firms. We test the implications of the model through a panel count data sample of MNEs that have invested in Central and Eastern Europe over the period 1990–1997. Interacting the measure of rivals' investment in country-industry pairs with uncertainty, we are able to identify the channel of Bayesian learning about revenue postulated by the model as the only one consistently generating the detected follow-the-leader behavior of foreign investments. The empirical findings are robust with respect to different model specifications.

Additional Metadata
Keywords Bayesian learning, FDI, discrete choice panel data, uncertainty
JEL C25, Discrete Regression and Qualitative Choice Models; Discrete Regressors (jel), D81, Criteria for Decision-Making under Risk and Uncertainty (jel), F21, International Investment; Long-Term Capital Movements (jel), L10, Market Structure, Firm Strategy, and Market Performance: General (jel)
Persistent URL dx.doi.org/10.1016/j.ijindorg.2007.12.002, hdl.handle.net/1765/13557
Citation
Altomonte, C, & Pennings, H.P.G. (2008). Learning from foreign investment by rival firms: Theory and evidence. International Journal of Industrial Organization, 26(5), 1203–1217. doi:10.1016/j.ijindorg.2007.12.002