This paper examines theoretically and empirically the extent to which the decision by foreign firms to invest in a group of countries is influenced by economic factors, as opposed to political risk and institutional performance. We consider the importance of these factors as drivers of foreign direct investment (FDI) for 32 European countries (subsequently divided into three pooled clusters) by means of panel regression techniques in two specifications over the 1995-2008 period. Our results suggest that risk and institutional factors considered in both static and dynamic perspectives significantly influence the behaviour of investors. Policies and institutions that vary widely between countries modify their decision-making, so that the purely economic factors have different statistical significance and impacts on the intensity of FDI, as was revealed by clustering countries into three groups according to levels of economic maturity. Additionally, not all factors of risk have an identical impact on FDI decisions in particular groups of countries. However, we find that as measures of political risk, monetary discipline, low regulation, effective government and good education prove to be highly significant for most country groupings. All of these measures reduce political risk and positively affect the level of FDI.Keywords: FDI; Political risk; Economic institutions; Panel regression; European Union. JEL: F2; D81; C23Acknowledgements: The authors are grateful for the financial support of the Grant Agency of the Czech Republic no. P402/12/0982 and for seed funding from the University of Limerick, which were used for this study. Highlights:• We compare 16 factors influencing FDI entry into three groups of countries.• Institutional and risk factors are important complements to economic factors.• The estimation is by static and dynamic specification of pooled panel data.• There is a high difference between static and dynamic decision-making of investors.• Importance of institutions rises with the degree of economic immaturity of recipients.

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The paper quantifies the role of factors associated with the growth (or decline) of micro and small businesses in European economies. The growth is related to the levels of employment and value added in enterprises, as well as, ten institutional variables. We test the data for consistency of behavioural patterns in various countries and gradually remove outlying observations that can lead to erroneous conclusions when using the classic estimators; this is a quite unique approach in panel data analysis. In the first part of this paper we outline a highly robust method of estimation based on fixed effects and least trimmed squares (LTS). In its second part we apply this method on the panel data of 28 countries in 2002-2008 testing for the hypothesis that micro and small businesses in Europe use different strategies for their growth. We run a series of econometric tests where we regress employment and total net production in micro and small businesses on three economic factors: gross capital returns, labour cost gaps in small relative to large enterprises and GDP per capita. In addition, we test the role of 10 institutional factors in the growth of family businesses.