Development index: analysis of the basic instrument of Croatian regional policy

• Published in: Financial theory and practice Vol. 39; no. 2; pp. 205 - 236
• Main Authors: Perisic, Ana, Wagner, Vanja
• Format: Journal Article Web Resource
• Language: English
• Published: Institut za javne financije 01.06.2015; Institute of Public Finance
• Subjects: composite indicators; Croatia; development index; development index; composite indicators; multivariate analysis; uncertainty analysis; sensitivity analysis; Croatia; Development research; Evaluation; Monte Carlo simulation; multivariate analysis; Regional development; Regional policy; sensitivity analysis; Socioeconomic development; uncertainty analysis
• DOI: 10.3326/fintp.39.2.4
• ISSN: 1846-887X; 1845-9757

The development level assessment and categorization of Croatian local and regional units is based on the value of the development index which is the main instrument of Croatian regional policy. The development index is a composite indicator calculated as a weighted average of five socio-economic indicators. The goal of this paper is to analyze the uncertainty and sensitivity of the development index that arise from the procedures and indicators used in its construction. This analysis is then used to propose useful guidelines for future impovements. The methodology of the Croatian regional development index has been critically reviewed, revealing problems of multicollinearity and the existence of outliers. An empirical and relatively more objective multivariate approach for weight selection has been proposed. The uncertainty and sensitivity analysis were conducted using Monte Carlo simulations and variance-based techniques. Instead of a unique point estimate for the development level of territorial units an alternative confidence interval approach was considered.