The Future of Regional Economy in Estonia

Foresight Centre envisaged regional economy development scenarios for Estonia

Studies of the Foresight Centre have resulted in four regional economy development scenarios for Estonia, which help to visualise the nature and location of economic activities in 2035, as shaped by a confluence of factors.

The Head of the Foresight Centre Tea Danilov said that the development of the scenarios was based on the innovations and trends that influence Estonia’s regional economy the most. “The analysis identified technological development and climate topics as the paramount factors defining our economic future. However, the development speed of these factors and their combined impact with other development trends vary greatly. That is why we are using scenarios, to identify different development alternatives, and assess their inherent risks and opportunities,” Danilov explained.

The study finds that Estonia’s regional development is affected by trends like automation and artificial intelligence applications, dispersed energy production and spreading of new forms of work, stricter environmental standards and change in consumer preferences, as well as urbanisation and counter-urbanisation, and increasing values of several mineral and natural resources.

Uku Varblane, expert of the Foresight Centre and project manager of the regional economy research, stressed that although Estonia’s regional policy goal is to use the potential specific to each region, it has so far failed to counter the increasing concentration of economic activities around Tallinn and Tartu.

“Harju County is growing faster than other regions, and regional growth centres have not received the expected boost. Social and population processes have so far mostly harmed the future perspectives of rural areas, but technological development and the growing environmental awareness along with changes in life style and forms of work may increase the attractiveness of the living environment on offer in rural areas, and may give a new impetus to small-scale entrepreneurship,” Varblane explained.

The development scenario Metropolitan Tallinn foresees development concentrating into large centres. The scenario predicts the growth of the capital region, spatial concentration of technology and knowledge based economy, and population erosion in rural areas. “In this scenario, we foresee the continued concentration of people and resources into Tallinn, and to a lesser extent also around Tartu and Pärnu. The concentration is further precipitated by the expense and special skills involved in implementing new technologies, which is why these are introduced only in large centres. Also, great quality of life and status are seen to come first and foremost from consumption, and big cities attract people,” Varblane described the possible development scenario.

The scenario Estonia of Growth Centres is based on the key concepts of forceful regional policy, broader autonomy of regions, and reduced inequality. From the foundation of local resources and growing knowledge base, 4–6 attractive residential and professional regions would develop in Estonia next to Harju and Tartu Counties. “Technological innovations make the location less important in this scenario, and favour small-scale economic activities that support regional anchor employers and create jobs. The determinants of the scenario also include rapid rise in the cost of living in the capital region, and deterioration of the living environment, as well as the more quiet pace of life associated with increased average age,” the expert of the Foresight Centre explained.

The scenario Ecocapitalist Estonia takes into account the carrying capacity of the natural environment, but with concentrated production and an export-centred development model. “Environmental preservation will come to the forefront, but since new production technologies and sustainable solutions are expensive and demand large activity volumes, production units will develop only in larger towns or in the immediate vicinity of natural resources. Rural areas would experience continued population erosion and increased unemployment because the activity environment is unfavourable for small-scale businesses,” Varblane said.

The scenario Estonia of Eco-Communities envisages a more environmentally friendly and social way of life, and a more localised and dispersed economy. “Recognising the consequences of environmental deterioration leads to a transformation of the way of life in favour of sustainability. There will be a growing trend of people moving to the countryside. With the arrival of environmentally minded newcomers, rural areas will experience improved quality of life and physical environment,” Varblane said, adding that some regions would develop faster than others in this scenario, while some would find themselves teetering on the brink of extinction.

The central objective of the regional economy research of the Foresight Centre is to identify the development scenarios of the regional economy in Estonia in the 2035 perspective. The research tries to identify political choices that would direct the development in the direction of the different scenarios. It is accompanied by examples of how different policies can be used as vehicles for regional policy. For example, merging universities and closing down regional colleges conforms to a spatially concentrated economic model, while regional R&D units and (technology) curricula support the dispersed economic model. Similar decision points can also be found in transport policy (quick connections to the capital vs. good intra-regional space-time connectedness), entrepreneurship policy (uniform approach vs. regionally varying conditions of support measures), and in other fields of policy.

The materials of the research field are available here (in Estonian):

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