Multivariate Classification of Local and Regional Government Units According to Socio-Economic Development

Abstract

One of the key problems of economic policy of the Republic of Croatia is the problem of uneven regional development. The Law on regional development of the Republic of Croatia regulates the evaluation and classification of local and regional government units. The classification is based on the level of development as measured by the development index. This univariate classification relies on the value of a single variable that is a linear combination of the standardized values of indicators, and this causes a loss of information. The goal of this paper is to demonstrate an alternative approach to the evaluation and socio-economic classification of territorial units based on multivariate analysis. The local and regional government units are evaluated using the multivariate methods based on five socio-economic indicators. Special emphasis is placed on undeveloped regions. In the analysis of the results, problems of multicolinearity and outlier existence, which exist in the classification based on development index, are encountered and eliminated. The results confirm high disparities in regional development. Almost all cluster methods result in the formation of a separate cluster, which could not have been foreseen from the classification based on the development index. Such a cluster contains local and regional units that are not highly undeveloped but have a large depopulation problem. Consequently, units that need to be subjected to a specific demographic development program can be indicated