Altomonte, C. and Pennings, E. (2008). Learning from foreign investment by rival firms: theory and evidence International Journal of Industrial Organization, 26(5):1203--1217.
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Affiliated author
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Publication year2008
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JournalInternational Journal of Industrial Organization
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.