The decision to invest and the investment level: An application to Dutch glasshouse horticulture firms

Investment models typically explain only a small share of the total investmentvariation within or between firms. A reason for this may be that those models do not explicitlydifferentiate between the decision to invest and the decision about the level of investment. Inthis paper, a two-steps theoretical framework and estimation procedure are developed to takeinto account the different nature of both decisions. ‘Nearly zero’ investments are consideredto be small replacement or maintenance investments and treated as ‘zero’ investments.The applied two-step Heckman model shows that the decision to invest is significantlyrelated to available capital (-), wealth (+), debts (-), output prices (+), land price growth (+),capital price growth (-), energy price growth (+), revenues (+) and age of the firm owner (-).The level of investment is also related to available capital, wealth, debts, output price, capitalprice growth and age of the firm owner, but with opposite signs for debts and capital pricegrowth. Moreover, firm size positively affects the level of investment (but not the decision toinvest). The fact that both decisions are affected differently proves the rationale of using atwo-step investment model but further research is needed to increase the explanatory powerof the models.