UGF Lecture 5

Management > Global Firm > Oligopolies > Studies > Hypothesis testing

Hypothesis testing

The hypothesis was tested with the calculation of entry condition indices (ECI). Below is the calculation of a three-year EDI from a period of ten years, for investment into country Y by firms in industry A from country X.

Year	1	2	3	4	5	6	7	8	9	10
No. of entries	1	1	2	4	2	1	2	1	1	1

There are 16 entries and 8 are grouped in years 3 to 5, which suggests that a leading firm triggered the bunching of movements by its entry in year 3.

This gives a 3-year ECI of 8/16 (0.5).

Remember that it is the grouping of entry rather than the explicit timing of entry that is of relevance to this theory.

It is admitted by Knickerbocker and Flowers that their models only explain part of of MNE behaviour, as it does not explain the reasons behind the investment of the first movers. This also suggests that sometimes rival firms follow the leaders without knowing exactly why.

Conclusions

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