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 Discrete Regression and Qualitative Choice Models; Discrete Regressors (jel C25), Criteria for Decision-Making under Risk and Uncertainty (jel D81), International Investment; Long-Term Capital Movements (jel F21), Market Structure, Firm Strategy, and Market Performance: General (jel L10)
Persistent URL dx.doi.org/10.1016/j.ijindorg.2007.12.002, hdl.handle.net/1765/13557
Series ERIM Top-Core Articles
Journal International Journal of Industrial Organization
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