To Boldly Grow: Part 1
How the space economy can launch Earth's prosperity to new frontiers
This is the first part of a series exploring the impact of the space sector on wider economic activity. This part finds that the rapidly growing space economy is a key driver of innovation, productivity, and economic growth. The second part of the series will highlight the importance of continued government support for the sector.
The space economy, as defined by the Bureau of Economic Analysis, ‘consists of space-related goods and services, both public and private’. This includes goods and services that:
Are used in space, or directly support those used in space [such as space vehicles, launch pads, and insurance]
Require direct input from space to function, or directly support those that do [such as satellite telecommunications and GPS]
Are associated with studying space [such as research and development, educational services, and observatories]
This report will use the terms ‘space economy’ and ‘space sector’ synonymously.
The sector is productive and high value-added
According to a report by the World Economic Forum, the global space economy was worth $630 billion in 2023. Put another way, the space economy is over twice the size of Finland’s economy. The sector’s value is predicted to rise to $1.8 trillion by 2035 - far outstripping global GDP growth. In the decade after 2009-10, the UK space industry experienced annual growth of 4.8% – a bright spot against a backdrop of sluggish GDP growth and stagnant productivity common to many developed countries.
The space economy is an extremely high value-added sector, meaning the value of what is produced by the sector far exceeds the sum of its parts. This is due to the complex and high-tech goods the sector produces. The high value-added nature of the sector means that it is highly productive (in terms of value produced per unit time). Indeed, the space industry is one of the most productive industries in the UK: the average value added per worker each year is 2.5 times the UK average. The industry employs a considerable amount of skilled labour, with 77% of workers in the UK sector estimated to hold a bachelor's degree or above - higher than any other sector in the country.
The production of space-based goods involves complex supply chains, with strong linkages both upstream (such as advanced solar panels for satellites) and downstream (such as the transport sector that relies on satellite-based GPS). The space economy is thus connected to many other high-productivity, high value-added sectors. As a result, expenditure in the space sector ripples through a dense network of interlinked firms, increasing aggregate output far beyond the initial injection – a phenomenon economists call the multiplier effect. A corresponding multiplier effect can induce increased employment beyond the space sector.
| Report | Domain | Period of analysis | GDP multiplier | Employment multiplier |
|---|---|---|---|---|
| PwC, 2022a | European Space Agency’s (ESA) ground systems engineering and operations activities and the Space Safety programme | 2000–2021 | 3.0 | 3.1 |
| Euroconsult, 2022 | ESA Terrae Novae (programme of human and robotic exploration into low Earth orbit, the Moon, and Mars) | 2023–2030 | 3.4 | 5.0 |
| PwC, 2022b | ESA’s FutureEO (satellite-based earth observation programme) | 2023–2030 | 3.5 | N/A |
| know.space, 2023 | Entire UK space sector | 2020–2021 | 2.6 | 2.6 |
Table 1: Gross domestic product (GDP) and employment multipliers from studies of space programmes. GDP multiplier is total GDP impact (direct gross value added [GVA] impact, plus indirect and induced GDP impact) divided by direct GVA. Employment multiplier is total supported employment (direct, indirect, and induced employment) divided by direct employment.
The space economy directly benefits many other sectors
Space exploration has driven a huge number of tangible innovations that we take for granted today, ranging from phone cameras and laptops to home insulation, baby formula, and CAT scans. More importantly, however, the space economy has an impact on the global economy that extends far beyond specific innovations.
Goods and services provided by the space economy increase efficiency and productivity across a vast number of sectors. It is hard to overstate the impact this has on the global economy: in the UK alone, global satellite services support over 18% of GDP, while the domestic space industry supports over 50 times its output in UK GDP.
Firstly, the space economy improves internet connectivity. This provides obvious benefits to many sectors including retail, media, and communications. More importantly, however, satellites such as OneWeb and Starlink raise the prospect of truly universal internet access. Currently, less than 60% of the world population uses the internet, of which the vast majority live in developing countries. The internet provides access to a vast amount of online information and resources, as well as the potential for high-fidelity telecommunications. This increased information can have profound developmental benefits, for example by improving human capital (including education) through access to training resources, and improving health outcomes through access to better health advice.
Secondly, the space economy allows for improved satellite-based observation and data collection. The cost performance of satellites has dramatically increased. High-resolution satellites have fallen in cost by a factor of 333 between 2016 and 2022, while medium-resolution satellites fell in cost by an incredible factor of 3500 between 2013 to 2022. This contrasts with solar panels, lithium-ion batteries, and the internet, which have fallen in cost (over roughly equivalent time horizons) by factors of 7, 8, and 14, respectively. The transportation sector, which underpins all global supply chains, relies on accurate location and navigation data from satellites. Insurance firms can effectively assess risk and damages, especially in remote locations. Energy providers can optimise solar and wind farm installations based on weather and sunlight patterns. Mining companies can identify potential deposits and improve communication and transport links with remote sites. Farmers can increase yields by anticipating weather patterns: 29% of row-crop farmers and 45% of specialty-crop farmers already rely on satellite data or plan to do so. This satellite data also supports the provision of several merit goods – goods that, beyond simply their monetary value, also provide benefits to the rest of society. These societal benefits are known as positive externalities, and are generally underprovided by the free market relative to the societally optimal level. For example, satellites allow for global monitoring of natural resources, food security, CO2 emissions, and climate change. The social benefits of monitoring and tackling these issues far outweigh the monetary value of the satellites themselves. Similarly, satellite data can allow for better mitigation of natural disasters, criminal activity, and infrastructure risks.
Thirdly, space provides unique opportunities for manufacturing and R&D (research and development). The dramatically declining cost of heavy launch vehicles (see Figure 1) raises the possibility of space-based manufacturing in the foreseeable future. For terrestrial firms, space represents a manufacturing and R&D platform with uniquely advantageous properties. For example, space’s high radiation levels may facilitate research into cancer care, beauty products, and anti-ageing. Furthermore, organic matter behaves differently in the microgravity of space – where the sensation of weight is almost completely absent. Experiments in microgravity have thus already yielded discoveries in biology and pharmacology. Microgravity also allows for improved mixing and isolation of ingredients thanks to reduced sedimentation and convection, and altered buoyancy. For example, crystals can grow larger and more uniformly in microgravity than on Earth. High-precision industries, such as semiconductors and optical fibres, are vulnerable to gravity-induced defects and contamination. Given space’s microgravity, near-vacuum, and its potential for abundant solar power, space-based manufacturing could dramatically increase quality, productivity, and efficiency in those industries. Advancements by Mitsubishi Electric demonstrate that 3D printing could amplify efficiencies by enabling the cheap construction of both final goods and capital in space. McKinsey estimates that, by collaborating with space companies for research and manufacturing, four industries alone (pharmaceuticals, beauty and personal care, semiconductors, and food and nutrients) could collectively make up to $6.4 billion.
Figure 1: Cost of space launches to low Earth Orbit
The space economy’s position at the edge of the technology frontier has large spillover benefits
By its nature, the space sector is at the frontier of innovation and technological advances. This development has spillover effects: innovations diffuse through the economy as other industries adopt them, increasing productivity and efficiency. It is this innovation and productivity growth that raises the rate of long-run economic growth, tangibly improving lives globally.
A large part of the space economy is devoted to R&D (research and development). The space sector is one of the most R&D-intensive in the UK, with R&D spending accounting for 11% of the sector’s GDP contribution – five times the UK average. Investment in the space sector not only has strong positive spillovers, it also delivers excellent returns on investment (ROI). A report by Technopolis Group concluded that the UK government’s investment of between €420 and €450 million in the European Space Agency (ESA) between 2020 and 2024 would have long-term spillover benefits of £14.2 billion. The report also included that the investment would deliver an ROI of 9.8 (i.e. every £1 invested generates a return of £9.80). That is an astonishing figure when compared to an ROI of 1.4 in R&D across the whole UK economy (though note that this is a conservative figure, and space investments are riskier than average R&D investments).
The space economy still has a vast amount of untapped potential. Government and commercial space programmes are only just beginning to leverage economies of scale, invest in R&D, and develop sector-specific human capital. The social returns (i.e. not just the private monetary benefit, but also the wider economic impact) to space-based activity are extremely high because almost every new project requires new skills, knowledge, technologies and innovations – all of which will eventually be adopted in other sectors, boosting productivity and growth. For instance, ESA’s FutureEO (Earth Observation) programme has an estimated spillover multiplier of 1.98 between 2023–2030, according to a report by PwC. This is due to the development of new technology and knowledge, including cutting-edge programmes such as geomagnetic field observations (SWARM) and vegetation observers (BIOMASS and FLEX), which provide benefits to the wider economy.
Compiling results from multiple studies, a 2021 report by know.space found that the average public ROI in R&D, technology, and capability investment in the space sector was an impressive 19.8 – with every $1 invested generating a return of $19.80 for the wider economy (though it should be noted that these studies are highly variable, both in their ROI estimates and their methodological quality). Overall, the significant untapped potential of the space economy, combined with the dramatic reduction in the cost of satellites and launches (discussed above), suggests that the returns on investment are likely to grow over time.
CONCLUSION
The space economy is a productive and highly technologically advanced sector of the economy. Space-based activities have positive externalities that improve efficiency and productivity across other sectors of the economy. Technological advancement through R&D has spillover benefits that extend far beyond the sector. However, the space economy’s vast potential for improving human flourishing has only just begun to be explored. Continued government support is vital to ensure the flourishing of a safe, competitive, and productive sector. This will be explored in the second part of this report.