Islands are integral to the economic, environmental and cultural fabric of many OECD countries. Across Europe, island regions host over 20 million inhabitants, accounting for approximately 4.6% of the population. While islands often face unique development challenges linked to physical discontinuity and isolation, small scale, limited resources and seasonality, their strategic position also offers significant opportunities for innovation and sustainable development.
This report was prepared by the OECD in collaboration with the European Commission’s Task Force for Reform and Investment (SG REFORM) and funded by the EU Technical Support Instrument (TSI). It analyses the structural characteristics of island economies, the costs of insularity, and the policy levers that can support transformation. The report forms part of the OECD-EU project “Improving the quality of multi-level governance and strengthening the resilience of island economies of Croatia, Greece, and Sweden”. It combines empirical desk research and qualitative analysis to develop policy recommendations for island regions.
Recent global shocks, such as the COVID-19 pandemic, along with rising climate and geopolitical risks have exposed vulnerabilities in many island communities, particularly those more reliant on tourism, transport and public services. At the same time, islands can become key players in achieving green and blue transitions and can serve as testbeds for digital solutions that inform wider regional development.
To realise this potential, islands must address persistent challenges such as high service-delivery costs, connectivity gaps, limited scale and narrow economic specialisation. The report argues for moving beyond primarily compensatory approaches towards a place-based, resilience-oriented policy framework, with multi-level governance and innovation as key enablers.
As a practical resource, the report is designed for policymakers at national, regional and local levels. It brings together quantitative analysis and case studies to support evidence-based decision-making. Its recommendations aim to strengthen the visibility of islands in national and EU strategies, improve the effectiveness of public services, and foster innovation ecosystems tailored to islands’ specific needs.
With appropriate governance arrangements, targeted investment and stronger data, islands can shift from dependency towards leadership in sustainability, innovation and resilience. The report offers policy directions, governance models and tools that can be adapted across different island territories, supporting more inclusive and resilient development.
The report was submitted for comments to the OECD Regional Development Policy Committee [CFE/RDPC(2025)33] via written procedure on 12 November 2025 and discussed at meetings of the OECD Working Party on Rural Policy on 2 December and of the OECD Regional Development Policy Committee on 4 December 2025.