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

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  • Oskam, Arie J.
  • Goncharova, Natalia V.
  • Verstegen, Jos A.A.M.

Abstract

Investment models typically explain only a small share of the total investment variation within or between firms. A reason for this may be that those models do not explicitly differentiate between the decision to invest and the decision about the level of investment. In this paper, a two-steps theoretical framework and estimation procedure are developed to take into account the different nature of both decisions. ‘Nearly zero’ investments are considered to be small replacement or maintenance investments and treated as ‘zero’ investments. The applied two-step Heckman model shows that the decision to invest is significantly related 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, capital price growth and age of the firm owner, but with opposite signs for debts and capital price growth. Moreover, firm size positively affects the level of investment (but not the decision to invest). The fact that both decisions are affected differently proves the rationale of using a two-step investment model but further research is needed to increase the explanatory power of the models.

Suggested Citation

  • Oskam, Arie J. & Goncharova, Natalia V. & Verstegen, Jos A.A.M., 2009. "The decision to invest and the investment level: An application to Dutch glasshouse horticulture firms," 2009 Conference, August 16-22, 2009, Beijing, China 51574, International Association of Agricultural Economists.
  • Handle: RePEc:ags:iaae09:51574
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    References listed on IDEAS

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    1. Elhorst, J Paul, 1993. "The Estimation of Investment Equations at the Farm Level," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 20(2), pages 167-182.
    2. Amemiya, Takeshi, 1974. "Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal," Econometrica, Econometric Society, vol. 42(6), pages 999-1012, November.
    3. Øivind Anti Nilsen & Fabio Schiantarelli, 2003. "Zeros and Lumps in Investment: Empirical Evidence on Irreversibilities and Nonconvexities," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1021-1037, November.
    4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    5. Paul Diederen & Frank van Tongeren & Hennie van der Veen, 2003. "Returns on Investments in Energy-saving Technologies Under Energy Price Uncertainty in Dutch Greenhouse Horticulture," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(4), pages 379-394, April.
    6. Natalia Goncharova & Arie Oskam & Alfons Oude Lansink & Arno van der Vlist & Jos Verstegen, 2008. "Investment Spikes in Dutch Greenhouse Horticulture," Journal of Agricultural Economics, Wiley Blackwell, vol. 59(3), pages 516-536, September.
    7. Geert Thijssen, 1996. "Farmers' Investment Behavior: An Empirical Assessment of Two Specifications of Expectations," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(1), pages 166-174.
    8. Gourieroux,Christian, 2000. "Econometrics of Qualitative Dependent Variables," Cambridge Books, Cambridge University Press, number 9780521331494, April.
    9. Gourieroux,Christian, 2000. "Econometrics of Qualitative Dependent Variables," Cambridge Books, Cambridge University Press, number 9780521589857, April.
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    More about this item

    Keywords

    investments; glasshouse horticulture; Heckman selection model; Agribusiness; Agricultural Finance; D92; Q12;

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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