Cluster and Factor Analysis of Structural Economic Indicators for Selected European Countries NATASA KURNOGA ZIVADINOVIC KSENIJA DUMICIC ANITA CEH CASNI Department of Statistics, Faculty of Economics and Business, University of Zagreb Trg J. F. Kennedyja 6, HR-10000 Zagreb CROATIA nkurnoga@efzg.hr http://www.efzg.hr/nkurnoga kdumicic@efzg.hr http://www.efzg.hr/kdumicic aceh@efzg.hr http://www.efzg.hr/aceh Abstract: - The last wave of EU enlargement ended on 1 st January 2007 with the accession of Romania and Bulgaria. Many countries of the South-Eastern Europe aspire to join the EU. Croatia appears to be the next prospective member, so the aim of this paper was to classify Croatia and EU 27 Member States according to the structural economic indicators. These countries were gathered into homogenous groups in terms of the following structural economic indicators: GDP per capita, total employment rate, comparative price levels, employment rate of older workers, long term unemployment and productivity of national economies expressed in relation to the European Union (EU-27) average. Firstly, the cluster analysis was used on three structural economic indicators: GDP per capita, total employment rate and comparative price levels. The hierarchical cluster analysis and non-hierarchical cluster analysis were applied and gave similar results. The factor analysis was then provided to find out the common factors of six structural economic indicators: GDP per capita, total employment rate, comparative price levels, employment rate of older workers, long term unemployment and productivity of national economies. Two factors were extracted and the factor scores for each observation were calculated. The factor scores were used in further cluster analysis and again similar results of classification was given. Key-Words: - Classification, Structural economic indicators, Multivariate methods, Hierarchical cluster analysis, Non-hierarchical cluster analysis, Factor analysis. 1 Introduction At the end of the 1980s and the beginning of 1990s, after the Cold war, and after the collapse of communism there was an opportunity for the European integration process to focus on countries of former Eastern Bloc [14]. This enlargement is distinguished by its importance, however, both politically and economically. Indeed, it is for the first time when countries belonging to the former communist bloc have become members of the single market [10]. The increasing openness of the Eastern European countries [4] during the gradual transition to market economy makes these to become targets for foreign investors. Their specificities have played an important role in the attractiveness of different types of investments, leading to changes in the market structure [9]. After the unification of Germany, or to be more precise, ten years later, 5 th expansion wave of European Union took place and it symbolised the biggest swing in the integration of European continent by the number of new members as well as by abolition of segmentation on European East and West. On 1 st May 2004, EU expanded on 10 new countries: Estonia, Lithuania, Latvia, Poland, Czech Republic, Slovakia, Hungary, Slovenia, Malta and Cyprus. The last (5 th ) wave of enlargement ended on 1 st January 2007 with the accession of Romania and Bulgaria. Many countries of South-Eastern Europe aspire to join the EU [14]. The integration of these countries raises one third of the population and the area of EU, while wealth increases only by five percent. In fact, the real convergence is at the centre of all economic issues of EU enlargement towards East. The WSEAS TRANSACTIONS on BUSINESS and ECONOMICS Natasa Kurnoga Zivadinovic, Ksenija Dumicic, Anita Ceh Casni ISSN: 1109-9526 331 Issue 7, Volume 6, July 2009