Regional development assessment: A structural equation approach

We propose a multivariate statistical framework for regional development assessment based on structural equation modelling with latent variables and show how such methods can be combined with non-parametric classification methods such as cluster analysis to obtain development grouping of territorial units. This approach is advantageous over the current approaches in the literature in that it takes account of distributional issues such as departures from normality in turn enabling application of more powerful inferential techniques; it enables modelling of structural relationships among latent development dimensions and subsequently formal statistical testing of model specification and testing of various hypothesis on the estimated parameters; it allows for complex structure of the factor loadings in the measurement models for the latent variables which can also be formally tested in the confirmatory framework; and enables computation of latent variable scores that take into account structural or causal relationships among latent variables and complex structure of the factor loadings in the measurement models. We apply these methods to regional development classification of Slovenia and Croatia.