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Figure 4.2.1 Assessment of the components of total wealth Intangible capital Protected areas, alternative cost method Forest resources, NPV Land assets, NPV Agricultural land, NPV Wealth measured using the NPV method Natural capital Residual value of structures and equipment Value of urban land assessed indirectly Residual value of structures and equipment Produced capital Produced capital Step 1 Step 2 Step 3 Step 4 Step 5 Structures and equipment Urban land Natural capital Total wealth Intangible capital Source: Where is the Wealth of Nations? Measuring Capital for the 21st Century, 22 The value of sub-soil assets is assessed during the period of use, based upon the net present value of the net profit earned during the (future) period of use. 5 In the case of forest resources, the value is the present value of the resource rent for timber. In order to do the calculations, data is required about timber production, the unit price of products made from timber, and the period of use of the forest. The product value is relatively simple to calculate, using the average or prevalent global market prices. The assessment of the resource rents is more difficult. Theoretically, the present value of the forest should be equal to the net value of the forest owner’s future stump fees, from which the costs of growing the forest, throughout the maturation period, have been deducted. Generally, the exact figures reflecting the revenues and costs of forest owners are not available in many states, and therefore, various average prices for timber products, as well as the calculated regional resource rents (price – cost/price) were used in the study. 6 In the case of agriculture land, assumptions were made concerning the average revenue from resource rent for ten cultures; the invariability of the agriculture land; as well as the average growth of 0.97% of agricultural production, per year, in the developed states, and a growth of 1.94% in the developing states. If the calculation year is t (based on the last assessment for 2005), the projected revenues for the period are t+24. 7 In the case of protected areas, the best theoretical point of departure is the willingness of the consumers to pay for the existence of protected areas. The evaluation method based on the willingness to pay is implemented in the case of natural sites that do not directly produce revenues, but which are valuable for many other reasons. These sites may be unusual natural phenomena, like the Jägala Cascade, or red sandstone outcropping on the Ahja River in Taevaskoda. Since these natural wonders do not have a price, the following method is used to determine their value — people are asked how much they would be willing to pay to preserve these natural wonders. In this case, the survey depends on the sample of respondents. The same principles are applied to summarise the result as are used for determining the support for various political parties. Since the evaluation of natural wonders in this way is related primarily to individual examples, in order to apply this way of thinking more generally, and ensure comparability on an international scale, an evaluation method utilising quasi-alternative costs was used, which was based on the average productivity of crop land 5 t+T–1 The value Vt is calculated with the following formula: in which p i is a unit of rent income; q i the production volume; r V t = ∑ p i q i / (1 + r)i–t i=t the social discount rate and T the life span of the resource (depletion time). Although generally, assessments exist for the various sub-soil resources and possible depletion periods, actually, the assessment of the reserves and possible future production volumes are uncertain. In the calculations, the value T=20 is used for all sub-soil assets, or in other words, it is assumed that the sub-soil assets will be depleted in 20 years. 6 To calculate the present value of forests, a timing value factor of 4%, and a time horizon of 25 years, is used. If the harvest exceeded the natural growth, the quotient of the difference between the forest reserve and the natural growth was used for the temporal assessment of the depletion of the forest reserves. If, based on this calculation, the depletion period for the forest reserves turned out to be less than 25 years, the appropriate shorter time period was used to calculate the value of the forest. When dealing with production reserves, the existence of infrastructure is also considered, which would ensure the accessibility of the timber, and the timber that is located more tan 50 km from the corresponding infrastructure is assessed as production reserves. Taking this fact into consideration means that only the forest which can be harvested and transported at a reasonable cost, due to the existence of the infrastructure, is taken into account. 7 4% was used as the timed factor (The Changing Wealth of Nations, 2011, 149). In the case of pasture land, the general assumptions were the same; the global prices for beef and lamb, as well as milk and wool, were used to calculate the rent value; and the growth tempo was assessed at 0.89% annually, in the developed states, and 2.95% in the developing states (The Changing Wealth of Nations, 2011, 149). 160 Estonian Human Development Report 2012/2013
and pasture land, and this was capitalised over a 25-year period at an adjusted rate of 4%. The value of the intangible capital is derived as the residual of the total value of wealth, which is calculated using the net present value (NPV) method. This is based on a principle that comes from the financial theory that the value of capital is equal to the income flow it creates in the future. If certain preconditions exist regarding the future income flow and discount rate, (which in the World Bank Report is used as the social rate of return on social investments) it is possible to evaluate the total value of wealth that its income flow will create. 8 Since, based on direct calculations, assessments of the value of tangible capital exist, which are derived from the difference between the total wealth and tangible capital, it is possible to obtain an assessment related to the value of the intangible capital. In principle, an assumption is made that the existence of various types of assets makes it possible to produce gross national income of a certain value, and from this gross value, the value of the assets is derived, which enables this national income to be produced. 9 On the other hand, relatively direct figures, which are based on market evaluations, exist for tangible assets. Since national income varies more than tangible capital (the value of produced and natural capital, incl. per capita) from state to state, it is easy to conclude that, generally, it is intangible capital that is important in the determination of a state’s standard of living. Based on the World Bank’s summary data, in the case of the lowincome states, 15% of wealth was related to produced capital and urban land, 30% to natural capital, and 55% to intangible capital, whereas the average wealth per capita, in 2005, was $6,523 per capita. In middle-income states, the corresponding proportions were 20%, 20% and 60%, while the average wealth per capita was $30,662. In the high-income states, the corresponding proportions were 15%, 4% and 81%, while the average wealth per capita was $561,129 per capita (The Changing Wealth of Nations, 2011, 182-183). In Table 4.2.2, data is presented about the set of reference states. Generally, the proportions of wealth related to produced capital and urban land vary from 15% to 20%; the percentage of natural capital between 1% and 5%; and intangible capital 75% to 85%. An exception is the states with significant sub-soil assets, like Chile, where the percentage of natural capital reaches 18.5%. The relative importance of produced capital and urban land, compared to the other states, was somewhat higher in South Korea and the Czech Republic, where it reached 22.3% and 22.6%, respectively. A totally unique capital structure can be found in Singapore, where the rela tive importance of produced capital and urban land was 45.2%. In the case of this high percentage, a significant role is also played by the fact that investments made in Table 4.2.2 Total wealth and its components in 2005. State Produced capital and urban land Natural capital Intangible capital Total Wealth Per capita (USD, thousands) % Per capita (USD, thousands) % Per capita (USD, thousands) % Per capita (USD, thousands) % Austria 104.8 18.4 9.1 1.6 456.8 80.0 570.7 100 Estonia 31.7 19.2 8.2 4.9 125.4 75.9 165.3 100 Netherlands 108.0 18.2 13.2 2.2 472.4 79.6 593.6 100 Ireland 101.9 17.0 11.2 1.9 486.0 81.1 599.1 100 Israel 43.7 13.4 4.8 1.5 278.9 85.1 327.4 100 Canada 86.8 16.1 36.9 6.9 415.0 77.0 538.7 100 South Korea 55.4 22.3 2.6 1.1 190.2 76.6 248.2 100 Lithuania 18.1 13.6 6.0 4.5 108.8 81.9 132.9 100 Latvia 19.3 15.9 7.3 6.1 94.7 78.0 121.3 100 Singapore 136.1 45.2 0.0 0.0 164.9 54.8 301.0 100 Finland 90.9 15.9 19.2 3.4 460.1 80.7 570.2 100 Denmark 132.1 17.8 19.6 2.6 591.2 79.6 742.9 100 Czech Republic 40.9 22.6 4.6 2.5 135.3 74.9 180.8 100 Chile 17.3 16.9 18.9 18.5 65.8 64.6 101.9 100 Hungary 25.7 14.9 6.0 3.4 141.3 81.7 173.0 100 Uruguay 8.9 10.3 8.3 9.6 69.5 80.2 86.7 100 Source: The Changing Wealth of Nations. Measuring Sustainable Development in the New Millennium 2011, 176–182. 8 In principle, the sample W(t) = ∫C(t) r(s) is used, in which W(t) is wealth in period t; C(t) is consumption in period t; r(s) is the timing coefficient. In this case, in order to eliminate volatility in the calculation of wealth in 2005, the average consumption between 2003 and 2007 was used along with a timing period of 25 years. 9 The study is based on the use of available total and net national income indicators, for which various indicators of saving have been calculated. The available gross national income is traditionally derived from the gross domestic product (GDP), which appears in such comparisons in the following manner — the GDP is added to the net income from foreign countries and the current net transfers. The available net national income is arrived at by deducting the latest depreciation from the gross national income. Estonian Human Development Report 2012/2013 161
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ESTONIAN HUMAN DEVELOPMENT REPORT 2
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Table of Contents 1 Human Capital /
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Dear Reader Since the moment when E
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1Human Capital Estonian Human Devel
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the HDI’s content has also been h
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Figure 1.1.1 The human development
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Figure 1.1.7 The income sub-index:
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The results of the Princeton Projec
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the hypothetical generation. The to
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Figure 1.2.3 Life expectancy. Eston
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Table 1.2.2 also presents the most
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The new trends that are appearing i
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Figure 1.2.8 Components of populati
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New features were introduced into E
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Initiation of Voluntary Birth Contr
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Table 1.3.1 Best-known educational
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(OECD 2012b). Therefore a certain r
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The reciprocal dependence of the pr
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Figure 1.3.8 Percentage of students
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Table 1.3.4 The quality of educatio
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1.4 Health Raul-Allan Kiivet Change
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Table 1.4.1 Usage of prescription m
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allude to the fact that approximate
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promote healthy lifestyles among th
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Figure 1.5.1 The World Values Surve
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Table 1.5.2 Estonia’s participati
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Figure 1.5.3 The percentage of the
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Figure 1.5.5 Percentage of the Esto
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The fact that Estonia’s position
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Summary Mati Heidmets The global vi
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2People and Society Estonian Human
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Table 2.1.1 Structure of the Bertel
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tioning market economies (15 states
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2.2 Freedom and democracy Martin M
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Table 2.2.1 Democracy indicators Po
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Figure 2.2.2 The distribution of th
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would be something that none of the
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political participation are general
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strongest, while a very small perce
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is concerned, Estonia is one of the
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Figure 2.4.2 Average circulation of
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2.5 Corruption Jüri Saar In accord
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Lithuania, 61%; and in Russia, 69%.
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2.6.2 Intentional homicides in Esto
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crime. And thirdly, there was a wis
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References 1. Ahven, A. & Tabur, L.
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states included in the EU Kids Onli
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2.8 Public assessments of the state
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Figure 2.8.4 Changes releated to tr
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of the state’s development are en
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Table 2.9.1 The positions of Estoni
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3. IEP (2011). Structures of Peace.
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3Welfare and the Quality of Life Es
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choices made, not what people say t
Page 111 and 112: Figure 3.1.5 Public social spending
Page 113 and 114: tion agreed upon the social contrac
Page 115 and 116: References 1. Aidukaite, J. (2006).
Page 117 and 118: hand, to the “inequality of acces
Page 119 and 120: and explanations of the extent of i
Page 121 and 122: 5- much more than I deserve. Some d
Page 123 and 124: people in Estonia consider the inco
Page 125 and 126: Table 3.3.1 Experienced Well-Being
Page 127 and 128: at about 70%. In Latvia and Lithuan
Page 129 and 130: sign. It seems that the usual view
Page 131 and 132: 3.4 Quality of life Anu Toots 3.4.1
Page 133 and 134: a uniform composite indicator has n
Page 135 and 136: 3.4.6 The components of life qualit
Page 137 and 138: Figure 3.4.4c Perceived quality of
Page 139 and 140: Figure 3.4.5 Changes in the depriva
Page 141 and 142: 3.5 Environment dimension of well-b
Page 143 and 144: Figure 3.5.1.b Estonia’s position
Page 145 and 146: 3.5.4 Energy intensity The energy i
Page 147 and 148: productivity, which is defined as t
Page 149 and 150: perceive themselves as worse off th
Page 151 and 152: 4The Economy Estonian Human Develop
Page 153 and 154: vide a valuable connection for maki
Page 155 and 156: Figure 4.1.3 Components of economic
Page 157 and 158: ule of law, the sub-indicators for
Page 159 and 160: References 1. Acemoglu, D.; Robinso
Page 161: Development Report employs generali
Page 165 and 166: Basing the total and net savings re
Page 167 and 168: 4.3 Labour market Reelika Leetmaa,
Page 169 and 170: The problems include the very limit
Page 171 and 172: • Expenditures for active labour
Page 173 and 174: who lose their jobs. These ensure i
Page 175 and 176: 4.4 Productivity and the economic s
Page 177 and 178: labour costs at the company level r
Page 179 and 180: Table 4.4.4 Comparison of the produ
Page 181 and 182: Figure 4.4.1 Annual average increas
Page 183 and 184: 4.5 Innovation Erik Terk, Katrin M
Page 185 and 186: Table 4.5.2 Comparison of innovatio
Page 187 and 188: Table 4.5.4 Comparison of the indic
Page 189 and 190: in order to make the R&D potential
Page 191 and 192: It is characteristic of the South K
Page 193 and 194: mechanisms for increasing their sta
Page 195 and 196: Globalisation and Policy Patterns 5
Page 197 and 198: When Estonia regained its independe
Page 199 and 200: 5.2 The impacts of globalisation an
Page 201 and 202: Table 5.2.2 Support of the differen
Page 203 and 204: 5.3 Development policies Erik Terk,
Page 205 and 206: • C -the “Estonia-centred” su
Page 207 and 208: Figure 5.4.1 Support for the possib
Page 209: Summary Erik Terk Estonia is part o
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ehavioural patterns. Therefore, it
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EDR 2012/2013 authors Clemens Buche
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EDR 2012/2013 authors Alari Purju i
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Editor-in-Chief: Mati Heidmets Prod
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