The Faroe Islands: A formula for growth in the Arctic?

While Greenland has been in the spotlight of Arctic geopolitics, the Faroe Islands, which are located at 62° North latitude in the North Atlantic Ocean between Scotland and Iceland, attract less attention but are an essential Arctic player as part of the Kingdom of Denmark. The current chairship of the Arctic Council by the Kingdom of Denmark is represented by Denmark and the autonomous, self-governing constituent countries of Greenland and the Faroe Islands. 

In late June 2026, the Faroe Islands hosted the fourth University of the Arctic Congress. The largest event in congress history — and the biggest ever hosted on the islands — drew more than 1,400 participants, putting the Faroe Islands on the radar of Arctic researchers who had never visited the destination before. For locals, it was just as much of an experience. Running alongside the Congress, the Arctic Council co-hosted an Ocean Connectivity Conference at the same venue. The choice of the place has been very fitting, given that the Faroe Islands’ economy revolves around aquaculture and fisheries. 

Surging population

The saying that there are many “Arctics” is very relevant to describing the demographics of the Faroe Islands. While many northern and Arctic regions are struggling to retain their populations and face the challenge of an aging population, the same does not hold for the Faroe Islands. In the last 10 years alone, the country’s population has grown by nearly 7,000 people, an impressive 47% increase reaching nearly 55,000 people in 2026 (see Figure 1). 

The drivers of the positive demographic trend in the Faroe Islands are multiple, but two factors stand out as particularly important: First, strong economic growth in key export sectors created widespread job opportunities across the economy, reducing the need to leave. The unemployment rate in the Faroe Islands is 0.9% in 2026, making it one of the lowest in Europe. 

Second, a large share of population growth was driven by return migration, as Faroese citizens, especially skilled professionals and families, moved back in response to improved conditions. owing to investments in education, R&D and cultural and leisure life. Another important driver is relatively high fertility rate of 1.91 in 2024 compared to a much lower rate of most Scandinavian countries (1.3-1.5). 

Unprecedented infrastructure development

The scale of infrastructure investment in the Faroe Islands is substantial relative to its population, with approximately 2.6 billion DKK (€350 million) invested in recent subsea tunnels opened in 2020 and 2023. The tunnels are financed through a model that combines state-backed borrowing with user-based toll revenues. The government manages risk through upfront financing and institutional arrangements, while repayment is shifted to citizens and users, with individual trips costing around 175 DKK (€25), a relatively high price that is nonetheless broadly accepted given the gains in connectivity. 

Facilities such as the €18 million aquatic center in Tórshavn, expanded in 2020 with a 50-meter pool, and the Olympic standard 50-meter Páls Høll in Vágur, opened in 2015, serve as flag posts of public infrastructure. These facilities function as community hubs, complementing the economic and physical connectivity of small Arctic societies.

Economic profile

The Faroese economy has demonstrated strong performance in terms of GDP. As Figure 2 shows, GDP has more than doubled since 2010, reaching an index value of 213 by 2024; however, it is measured at current prices, and some of that growth reflects inflation rather than real output growth. At €68,000 per capita in 2024, the Faroe Islands ranked among Europe’s higher income economies.

According to government sources, fishing and aquaculture together contribute approximately 20 percent of the GDP. Data from the Ministry of Foreign Affairs and Trade confirms that the economy is highly concentrated in the marine sector, with seafood accounting for approximately 95% of total exports.

In contrast, national statistics show that tourism, despite its international visibility, has a relatively limited direct contribution, peaking at approximately 1.9 percent of GDP in 2019, although related service sectors such as trade, hotels, and restaurants remain important for employment and regional activity. Altogether, this makes the Faroe Islands a strong but narrow economy, where high income levels are sustained by a limited number of sectors.

From a policy perspective, industrial concentration creates both resilience and vulnerability, as economic performance is closely tied to external factors such as global fish prices, fishing quotas, environmental conditions, and resource sustainability. This is reflected in the high fluctuations in real growth in percentage, ranging from 7% in 2012 to 0.8% in 2024 (see Figure 3). 

Consequently, there is a need for economic diversification to mitigate exposure to sector-specific shocks.

Housing challenges

The Faroe Islands are experiencing severe housing shortages as rapid population growth vastly outpaced new construction, with only 2,336 dwellings constructed over the last ten years (see Figure 4).  Despite recent growth in building activity, the current housing supply cannot keep up with the rising demand, worsening the deficit over the years. 

The situation with housing mirrors similar challenges; for example, in Alaska, the demand for housing outpaces the supply. In conversations with local people in the Faroe Islands, the criticality of housing is raised repeatedly as it affects getting onto the property ladder for young families, and the accessibility of local education is highly tied to student housing. Many young people are going to the mainland for education, and research shows that Faroese young people aged 18–24 worry more about their economic and housing conditions than their older counterparts. 

Lessons for the Arctic

The Faroe Islands provide a unique example of a subarctic nation embracing technology, infrastructure development, and maintaining high population growth. However, a closer look reveals economic and social vulnerabilities beneath the surface. The lesson for other Arctic communities is not to copy the model but to understand what conditions made it work.

Alexandra Middleton is a Researcher at Oulu Business School, University of Oulu,  specializing in sustainability, corporate social responsibility, and Arctic business development. With a doctorate in Economics and Business Administration, she has published extensively on climate change accountability, sustainable development, demographics, human capital, innovations, and connectivity solutions in the Arctic.