Estonia's regional policy has so far failed to reduce regional development disparities. Productivity in Harju County exceeds the national average by nearly a quarter, while in most counties it remains below 75 percent. Jobs are concentrating: in 2011, Tallinn and Tartu accounted for 43 percent of Estonia's jobs; by 2021, the share had risen to 52 percent. Nearly two‑thirds of managers and top specialists work in the two cities, and more than three‑quarters of vocational, scientific and technical jobs are located there.

According to the continuation scenario of the national spatial plan's population forecast, more than half of Estonia's 78 municipalities will lose over a quarter of their population by 2050, and nine will lose more than half. Outside Harju and Tartu counties, the remaining 13 counties lost more than 150,000 residents between 2000 and 2025.

Peripheralization — where wealth, opportunities and public goods concentrate in a few cities — can lead to growing feelings of injustice and exclusion among large parts of the population. Lagging productivity and employment represent unused societal potential. Population decline and aging caused by lack of jobs in peripheral regions, along with disillusionment with the state, constitute a direct security risk.

The opportunity of the national plan

Estonia's regional policy needs a restart. The goal cannot be to make all regions identical or to redistribute money concentrated in Tallinn. Instead, mechanisms must be created to motivate capital and companies in the capital region to create new value elsewhere in Estonia rather than move abroad.

The regional perspective appears in the EU's 2028+ national plan, but it remains focused on improving local services, infrastructure and living environments. Measures aimed at increasing economic competitiveness are mostly nationwide and "land" primarily in Tallinn and Tartu companies, further widening regional disparities.

To rebalance development, efforts must focus on strengthening the economic capacity of other regions in four directions.

Putting enterprise policy at the center

The most important change concerns enterprise and innovation policy. In many counties, industry plays a major economic role, but lower‑value‑added activities dominate, and their previous competitive advantage relied on low input costs — which is no longer the case. Meanwhile, high‑productivity service industries have concentrated in the capital region, receiving the largest share of research, development and innovation support.

The solution is long‑term enterprise and business‑environment development programs based on functional regions — the historical county centers — integrating company investments, new infrastructure, skills development, innovation, technology transfer and expert consulting into a single whole.

Equally important is adding a clear regional convergence mechanism to national competitiveness measures. The lower a region's GDP per capita, the stronger the equalizing effect of economic policy should be. Given current GDP differences, around 70 percent — roughly €420 million — of the planned €604 million in competitiveness measures should reach areas outside Harju County.

To achieve regional balance, the share of regional enterprise measures must be increased. For example, nationwide flagship‑company and strategic‑investment programs should be directed more outside Tallinn.

Innovation policy also needs a clear regional component. Regional colleges, applied universities and vocational schools must be more strongly linked to local companies' development activities.

Ensuring mobility and housing

The second pillar of renewed regional policy should be strengthening functional‑region labor markets. The labor pool outside Harju and Tartu counties is shrinking. Commuting between home and work crosses municipal and even county borders.

Regional labor markets need unified public transport routes, ticketing systems and service standards. The goal could be to increase the share of people who can reach their functional region's center for work or school within an hour by public transport.

A functioning regional labor market also requires a functioning housing market. In many parts of Estonia, the market value of new or thoroughly renovated housing is lower than construction costs. Quality housing is scarce.

A good job is not enough if a specialist cannot offer suitable housing for their family or if banks refuse financing due to low collateral value. Regional differences in collateral value must be mitigated through guarantees and loans, and quality municipal housing stock must be supported in market‑failure areas.

Regional policy must be a government‑level responsibility

Regional policy cannot be the concern of only one minister or a small department. It is inherently cross‑sectoral, but the minister responsible currently lacks sufficient leverage to influence decisions in economic, education, social and infrastructure policy.

When designing state institutions and services based on sectoral cost‑efficiency, impacts on regional jobs, service accessibility or existing infrastructure use are not considered. Where significant negative regional impacts occur, mitigating measures must be applied.

Estonia needs a national regional development strategy with a status comparable to sectoral development plans, and regional policy must be coordinated at the government level. Responsibility for considering regional impacts must lie with a sufficiently high management level in every ministry.

Regional development should also receive more attention in the Riigikogu — for example, through a standing committee on regional development and local government, which would organize annual plenary debates on regional development.

Drawing the regional map based on real human movement

The basis for strengthening regional development capacity should be functional urban regions (FUR) defined in the national spatial plan — city regions consisting of a central town and its hinterland where daily activities of companies and residents take place.

These are the logical units for organizing enterprise measures, labor‑market policy, mobility and, importantly, the work of development organizations.

Not everything can be done everywhere, and one size does not fit all. Tallinn and Harju County compete with other Northern European capital regions. Tartu's advantage lies in the research and development capacity of its universities. Larger county centers can build on industry based on local resources, where people, new technologies, knowledge and skills — taught and developed by local applied universities and vocational schools — are increasingly important.

Fragmented regional development organizations must be consolidated into a unified network, as global competitiveness requires top‑level expertise, scale and smart funding.

A regional development organization must be a creator and strong implementer of new ideas — not merely a distributor of support rounds — understanding companies' needs, finding partners, initiating investment and development projects, and supporting product development and exports.

The government must define development goals for functional regions based on their potential, along with measures, funding and indicators, enabling them to contribute to Estonia's economy according to their capabilities. Such an agreement would be formalized in a development pact.

It's not necessarily about more money

The core of these proposals is regionalizing existing policies, not adding new costly measures. Enterprise, innovation, transport, education and other policies must also fulfill regional development goals.

Regional policy should focus on creating new jobs, not supporting local government services, which are generally already at a high level.

The 2028+ national plan could reshape Estonia's regional policy before the next EU funding period begins. If national competitiveness, innovation, labor and capital measures remain spatially blind, they will continue to amplify economic concentration. To ensure all of Estonia thrives, regional policy must be directed toward strengthening the competitiveness of companies in functional regions and thereby creating new jobs. This requires decisiveness.

Rivo Noorkõiv is a consultant at OÜ Geomedia, Veiko Sepp is thematic lead for spatial development and regional policy at the University of Tartu's Centre for Applied Social Sciences, Kersten Kattai is a lecturer in public administration at Tallinn University's School of Governance, Law and Society, Garri Raagmaa is an associate professor of regional planning at the University of Tartu and director of Pärnu College, Ülari Alamets is a project coordinator for the Central Baltic Programme, Mihkel Laan is a consultant at OÜ Cumulus Consulting, and Mikk Lõhmus is a member of the Lääne‑Nigula municipal council and an expert in public administration.

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