A Latent Budget Analysis Approach to Classification: Examples from Economics

Latent budget analysis is a classification technique that allows clustering identification by using compositional data. This paper presents examples of how this technique deals with the unit-sum constraint by establishing an initial independence model to which subsequent models are compared in terms of their relative fitness degree. In fact, latent budget analysis does not impose linearity, homogeneity, or even specific distributions on data. Results help to understand some important relationships between capital stock composition and income or food diet composition in a heterogeneous sample of countries.