A country's size cannot be overstated. I don't know about cost, but for mere agility, the smaller a country is, the more nimble it can be for all sorts of reform and progressive progress. Singapore and the Netherlands are both small countries that have managed to overhaul aspects of society without much barrier in years past. Germany is a big place, the U.S. much bigger. Estonia, tiny. You can do all sorts of things when you have just a few people it will affect.

It's the other way around. Remember, countries pay for R&D independent of the number of people in it, but they only get taxes relative to their population. So smaller countries need to spend a higher % of GDP on IT or deal with worse systems.

What's going on is larger counties made the jump sooner so small countries have many examples to learn from.

  So smaller countries need to spend a higher % of GDP on IT

That... or just import IT that was already developed elsewhere.

Nobody sells 100% of IT in a box for an arbitrary country, off the self, zero customization required. Now, they can import things like operating systems, routers, word processors, etc, but so can large counties. And even then localization may not work out of the box.

Remember, things like local tax laws are not going to simply reflect some other country's rules 100% of the time.

Let's be frank, R&D costs are not the problem here.

Fewer citizens also means smaller budget, how does that help?

Economies of scale would make the opposite true.

Population density is probably the important factor. Small countries tend to have a higher population density which makes infrastructure cheaper.

I have no idea if that's true in general, but, in this case, Estonia is the one with the lower population density.