©Antti Talvitie, 2026.
Finland’s Economic Geography: Liikenne 6 PlanFinland is an island. Sort of. Geography, location, distance from markets, and access to ports have shaped her economic fate and limited or slowed economic growth and market integration. Finland’s subsidy-distorted economic geography has a twenty-year run into a dead-end. To maintain 25% export BKT share and 40% export-related employment make the turnaround urgent. This paper proposes the key to doing it. The 2009 World Development Report observes that “well-connected regions benefit from scale economies … that isolated regions cannot …” Landlocked or remote economies are disadvantaged by high transport costs and limited market access. Finland is a disadvantaged area.
According to Nobel-prize winner Paul Krugman, incremental infrastructure investments have delivered only limited results to transform economies, but network level investments have overcome the limits of geography. Scaled up solutions are needed in Finland to alter economic geography to reduce time-distance, alter inefficient spatial patterns, and with policies and new institutions foster economic growth.
Using Infrastructure to Transform Economic Destiny
Scaled-up infrastructure investments will reshape Finland’s economic geography and economy. For example, in Korea and China infrastructure was used to integrate geographically disadvantaged areas. Transport facilities were planned and implemented to do more than reduce transport cost, but to “inducing industries locate and access directly major markets, ports, and airports.” This was intentional. According to the World Bank, improved expressways and ports integrated “inland regions with coastal growth areas”, giving rise to manufacturing and export-oriented regional clusters.
Delivery and financing of scaled-up infrastructure facilities must be viewed as a commercial enterprise, not as a social service by government administration from general revenue (and borrowing). The best means for this are corporate entities (like the Öresund bridge), which operate under commercial law and recover costs over time through user charges, tolls, and fuel taxes, not from the budget and subsidies.
Large infrastructure programs will build domestic construction and engineering capabilities. Sustained demand for construction services and materials, and engineering skills foster internationally competitive firms. Infrastructure investment supports industrial development and strengthens supply chains. It transforms economic geography when built ahead of demand, financed largely through domestic capital.
Although transport sector investment has increased in Finland, fragmented and inefficient transport investments have not generated corridor-level efficiency to reduce logistics costs and stimulate economic development. Finland has a high (but stagnated) income level, trade integration, and good institutional framework with access to proven infrastructure technologies, but infrastructure investments have emphasized restoring and maintaining existing networks (and doing it bureaucratically and awfully slowly) rather than expanding them at the scale required to support transformation of economic development.
The Rationale for Building Ahead of Demand
David Aschauer argued that public infrastructure investment has had a positive effect on long-run growth in the United States. More recent literature emphasizes where economic activity takes place and how firms and households organize themselves and shows that transportation investments have long-lasting effects on regional economic structure.
Infrastructure assets are long-lived and costly to modify. Delayed and fragmented investment can solidify inefficient spatial forms. Binyam Reja argues that responding to economic development is costly. Anticipating growth is more effective when building ahead of demand
Benefit Cost Analysis (BCA) and other methods do not capture the economic value of large investments. They place greatest weight on travel time savings, accident avoidance, and emissions, rarely on pricing of travel, and are ill-suited to projects that reshape economic geography. The most important impacts of system-scale investments do not arise directly from time savings, but from firm location, access to markets, and, especially, private investment. These effects can rarely be attributed to a single project. Transformative network investments may be weak in ex-ante BCA appraisal, when the initial demand is low, which favors incremental projects with easily quantifiable benefits. This is the case in Finland.
Risks of Building Ahead of Demand
Building infrastructure ahead of realized demand entails risks, particularly if fiscal capacity is limited. That risk is magnified when infrastructure is used to transform economic geography. In such cases excess capacity is unavoidable for years, before demand gradually materializes as firms, households, and supply chains reorganize, while the cost of excess capacity is experienced upfront.
Geographic transformation cannot be achieved without the risk of excess, underutilized capacity. Transitional overcapacity is inherent in efforts to transform economic geography. Overbuilding is costly, but so is persistent underinvestment. A well-conceived build-ahead strategy requires corridor-based planning, phased implementation, appropriate institutions and financing frameworks that recognize short-term inefficiency as a manageable cost of long-term transformation. It is not a planning failure.
Policy Implications for Finland: Reorienting Infrastructure from Projects to Corridors
Infrastructure has its greatest impact on industry location and job creation when it is used deliberately to shape economic geography rather than to respond to capacity of road and rail deficiencies. Infrastructure policy must be reoriented towards corridors rather than individual projects. I made such proposal in 2023 paper https://talvitieresearch.blogspot.com/2024/09/transportinfra-del-2-transportpolitik.html#more ’Nykyaikainen liikenneverkko ja kilpailukykyinen Suomi’ for the highways and railways. Briefly, the proposal consists of modernizing selected highway corridors, reducing the railway track length by 50%, and transfer 25.000 km of Connector roads to private road associations. The proposal is not radical and can be financed domestically as explained later and in detail in that paper; it includes pricing and “soft” plans. Investment cost is ~ €10 mrd (at 2023 prices) over six years. Figure.
The downsizing of the railway network may initially be a bitter pill to swallow, but far bitter if it is not done because of the railways’ enormous economic and social costs. VR’s track fee cost coverage must be raised from 10% to 75—100 %. The transfer of 25.000 km Connector roads can be budget neutral (~ €70-100 million) and of great benefit to private road associations and the private roads.
Building Ahead of Demand is a Managed Policy Choice
Building infrastructure ahead of demand is among the most consequential government policy choices, given the long life, large capital needs, and limited ability to reverse investments. Building ahead of demand entails risk but can be mitigated with policies to absorb short-term slack while longer-term benefits materialize.
The rationale for building ahead rests not on precise demand forecasts, but on whether demographics, regional development and trade, or shifts in industrial development are likely to translate over time into effective demand. Early underutilization should be monitored in relation to these factors.
Institutions and Delivery Systems
Institutions and delivery systems are central for building corridor-scale infrastructure. They cannot be effectively delivered by infrastructure administration of discrete projects. The right institutions must be capable of managing infrastructure as economic assets, as a going concern. International experience shows that corporate entities, expressway, port, airport and railway companies, while not problem free, are more effective and accountable for managing life-cycle responsibilities, operating under commercial law, with public ownership, audited accounts, while policy and regulation remain with the state.
The Government will need to develop delivery organizations that are fit for managing infrastructure at the corridor level. They need to manage revenues, borrow responsibly and engage with financiers.
Financing Infrastructure as a Means for Transforming Economic Geography
Financing under commercial law will need awareness that system-scale infrastructure produces benefits gradually, possibly across sectors, and over long term while costs are incurred upfront. Financing models reliant on annual budgets, or isolated concessions are poorly suited to this profile.
A central task is to establish durable revenue bases. Expressways, airports, ports, railways, logistics, and transporters require predictable revenues, from tolls, user charges, fuel levies, access fees, and even land value capture, to support long-term, revenue-linked borrowing. Revenue-backed financing enables continuity of investment, supports maintenance, and reduces vulnerability to fiscal cycles.
This is important for private sector participation. The public sector must bear the risks inherent in early stage and uncertain demand. An enabling legal environment is needed for private investments, one that absorbs initial volatility but also provides signals to attract capital and private sector investments to generate sustainable returns. It will be difficult for rigid, rule-bound and inflexible Finnish government practices to create such revenue-backed platforms for off-budget or internal borrowing.
Public finance can complement private financing or internal borrowing to absorb early-stage risk. For the private sector, guarantees can be effective for local financing. Ultimately, the goal is for public intervention to pave the way for private capital, enabling infrastructure corridors to transition from public-led development to generate market-led growth.
Infrastructure Supply Chains, Skills, and Industrial Capability
As noted earlier, large infrastructure programs will build domestic construction and engineering capabilities. Because both require expertise beyond engineering and planning, scalable competencies are created for international advisory consultancies in finance, road asset and environmental management.
Managing Risk
Transforming economic geography entails risk, including periods of excess capacity and delayed returns. The policy challenge is not to eliminate risk, but to manage it. Build-ahead strategies must be embedded in realistic fiscal frameworks, avoid isolated investments, and with awareness of contingent liabilities. Some inefficiency, the cost of transforming economic geography, is intentional and manageable. As for the environment, Liikenne 12 plan harms the environment as much as what is proposed, though in other places. This distinction is central to the proposed Liikenne 6 plan and policy, and to risk management.
Concluding Note
Liikenne 6 emphasizes institutional coordination, and flexible financing approaches aligned with system-level and long-term performance, and that corridor development is preferred to individual projects. Shaping economic geography is a gradual process that involves risk and requires institutions capable of managing transition over time. The policy choice is not whether to invest in infrastructure, but whether future investments will remain reactive and incremental or be planned and implemented to support sustained productivity, international competitiveness, employment, and domestic welfare.
Acknowledgement. I have benefited from discussions with Binyam Reja, PhD, a friend and a collaborator, over three decades in the World Bank.
Building infrastructure ahead of realized demand entails risks, particularly if fiscal capacity is limited. That risk is magnified when infrastructure is used to transform economic geography. In such cases excess capacity is unavoidable for years, before demand gradually materializes as firms, households, and supply chains reorganize, while the cost of excess capacity is experienced upfront.
Geographic transformation cannot be achieved without the risk of excess, underutilized capacity. Transitional overcapacity is inherent in efforts to transform economic geography. Overbuilding is costly, but so is persistent underinvestment. A well-conceived build-ahead strategy requires corridor-based planning, phased implementation, appropriate institutions and financing frameworks that recognize short-term inefficiency as a manageable cost of long-term transformation. It is not a planning failure.
Policy Implications for Finland: Reorienting Infrastructure from Projects to Corridors
Infrastructure has its greatest impact on industry location and job creation when it is used deliberately to shape economic geography rather than to respond to capacity of road and rail deficiencies. Infrastructure policy must be reoriented towards corridors rather than individual projects. I made such proposal in 2023 paper https://talvitieresearch.blogspot.com/2024/09/transportinfra-del-2-transportpolitik.html#more ’Nykyaikainen liikenneverkko ja kilpailukykyinen Suomi’ for the highways and railways. Briefly, the proposal consists of modernizing selected highway corridors, reducing the railway track length by 50%, and transfer 25.000 km of Connector roads to private road associations. The proposal is not radical and can be financed domestically as explained later and in detail in that paper; it includes pricing and “soft” plans. Investment cost is ~ €10 mrd (at 2023 prices) over six years. Figure.
- Nordic Connector, Vaasa—Umeå highway
- E12/E8 Tampere—Oulu motorway, 550 km
- Malm Airport reconsidered and reinstalled
- E8 Pori -- Vaasa 2+2 expressway, 190 km
- ’The Blue road’ Kuopio – Vaasa highway, 375 km
- Kajaani – Kokkola highway, 250 km
- Joensuu-Pieksämäki railway upgrade 160 km. (Haapamäki-Seinäjoki later, maybe).
- Railway downsizing, 2500-3000 km
- Transfer of 25.000 km Connecting roads to private road associations.
The downsizing of the railway network may initially be a bitter pill to swallow, but far bitter if it is not done because of the railways’ enormous economic and social costs. VR’s track fee cost coverage must be raised from 10% to 75—100 %. The transfer of 25.000 km Connector roads can be budget neutral (~ €70-100 million) and of great benefit to private road associations and the private roads.
Building Ahead of Demand is a Managed Policy Choice
Building infrastructure ahead of demand is among the most consequential government policy choices, given the long life, large capital needs, and limited ability to reverse investments. Building ahead of demand entails risk but can be mitigated with policies to absorb short-term slack while longer-term benefits materialize.
The rationale for building ahead rests not on precise demand forecasts, but on whether demographics, regional development and trade, or shifts in industrial development are likely to translate over time into effective demand. Early underutilization should be monitored in relation to these factors.
Institutions and Delivery Systems
Institutions and delivery systems are central for building corridor-scale infrastructure. They cannot be effectively delivered by infrastructure administration of discrete projects. The right institutions must be capable of managing infrastructure as economic assets, as a going concern. International experience shows that corporate entities, expressway, port, airport and railway companies, while not problem free, are more effective and accountable for managing life-cycle responsibilities, operating under commercial law, with public ownership, audited accounts, while policy and regulation remain with the state.
The Government will need to develop delivery organizations that are fit for managing infrastructure at the corridor level. They need to manage revenues, borrow responsibly and engage with financiers.
Financing Infrastructure as a Means for Transforming Economic Geography
Financing under commercial law will need awareness that system-scale infrastructure produces benefits gradually, possibly across sectors, and over long term while costs are incurred upfront. Financing models reliant on annual budgets, or isolated concessions are poorly suited to this profile.
A central task is to establish durable revenue bases. Expressways, airports, ports, railways, logistics, and transporters require predictable revenues, from tolls, user charges, fuel levies, access fees, and even land value capture, to support long-term, revenue-linked borrowing. Revenue-backed financing enables continuity of investment, supports maintenance, and reduces vulnerability to fiscal cycles.
This is important for private sector participation. The public sector must bear the risks inherent in early stage and uncertain demand. An enabling legal environment is needed for private investments, one that absorbs initial volatility but also provides signals to attract capital and private sector investments to generate sustainable returns. It will be difficult for rigid, rule-bound and inflexible Finnish government practices to create such revenue-backed platforms for off-budget or internal borrowing.
Public finance can complement private financing or internal borrowing to absorb early-stage risk. For the private sector, guarantees can be effective for local financing. Ultimately, the goal is for public intervention to pave the way for private capital, enabling infrastructure corridors to transition from public-led development to generate market-led growth.
Infrastructure Supply Chains, Skills, and Industrial Capability
As noted earlier, large infrastructure programs will build domestic construction and engineering capabilities. Because both require expertise beyond engineering and planning, scalable competencies are created for international advisory consultancies in finance, road asset and environmental management.
Managing Risk
Transforming economic geography entails risk, including periods of excess capacity and delayed returns. The policy challenge is not to eliminate risk, but to manage it. Build-ahead strategies must be embedded in realistic fiscal frameworks, avoid isolated investments, and with awareness of contingent liabilities. Some inefficiency, the cost of transforming economic geography, is intentional and manageable. As for the environment, Liikenne 12 plan harms the environment as much as what is proposed, though in other places. This distinction is central to the proposed Liikenne 6 plan and policy, and to risk management.
Concluding Note
Liikenne 6 emphasizes institutional coordination, and flexible financing approaches aligned with system-level and long-term performance, and that corridor development is preferred to individual projects. Shaping economic geography is a gradual process that involves risk and requires institutions capable of managing transition over time. The policy choice is not whether to invest in infrastructure, but whether future investments will remain reactive and incremental or be planned and implemented to support sustained productivity, international competitiveness, employment, and domestic welfare.
Acknowledgement. I have benefited from discussions with Binyam Reja, PhD, a friend and a collaborator, over three decades in the World Bank.
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