Study finds Estonia may have overinvested in broadband

Estonia may have invested too heavily in high-speed internet networks in some regions, while better-timed and more targeted broadband investment could have increased the Baltic region’s economy by up to 10 percent, ERR reported, citing a new study.

Researchers from Estonia, Norway and Finland, including Jaan Masso of the University of Tartu, analysed economic and broadband network data from 21 Baltic regions between 2005 and 2019. They used mathematical models to identify the most effective investment strategies.

The study found clear differences between the Baltic states. In rural Latvia and Lithuania, network development remained below optimal levels, meaning smarter investment could have generated greater economic benefits. Estonia showed the opposite pattern, with researchers identifying overinvestment, particularly in northern and central parts of the country.

Networks in those areas continued to expand rapidly even after much of their potential to stimulate economic growth had been exhausted. The researchers said this may indicate that development was driven by rural policy objectives or the marketing interests of service providers rather than purely by economic returns.

The data also showed a marked divide between capital regions and other areas. The economic potential of new internet cables around Tallinn, Riga and Vilnius has largely been exhausted, while targeted broadband development in remote parts of Latvia and Lithuania could significantly reduce regional inequality.

The researchers urged decision-makers to assess alternatives for every major project. Broadband networks are not always the investment most likely to strengthen a local economy. In some cases, society could gain significantly more by investing the same amount in physical infrastructure or education.

Private companies tend to invest in densely populated cities, leaving more sparsely populated areas behind when network development is left solely to the market. The researchers said state support may therefore be needed, while Estonia’s experience also shows that pursuing maximum coverage at any cost can lead to investments whose price exceeds their real economic return.

The researchers’ findings have been published in the Journal of Productivity Analysis.