Policy Pathways Beyond the Shoreline

1. Assessment and recommendations

Abstract

This chapter consolidates the report’s empirical evidence, case studies and comparative analysis. It first presents an “Assessment” that synthesises analytical findings on island typologies, socio-economic performance, the cost of insularity, and governance models in Croatia, Greece and Sweden, providing the diagnostic basis for policy action. Building on this, the “Policy implications” section outline strategic directions for OECD and national policymakers, while the “Operational recommendations” translate these directions into an integrated, action-oriented roadmap with concrete instruments, country examples and links to EU Cohesion Policy frameworks.

Assessment

Island regions in OECD countries form a small but distinctive set of territories whose development trajectories are shaped by insularity, small scale, remoteness and lack of markets, limited availability of land and often seasonality. These features underpin economic performance, and the capacity of firms located in islands to innovate and scale up. Their insularity, typically expressed through small and fragmented markets, complex archipelagic structures and higher service-delivery costs, constrains competitiveness and their ability to deliver well-being standards. Notwithstanding, island regions are also attractive locations for tourist, digital nomads and have potential “laboratories” for green, blue and digital transitions.

Policymakers need to better understand the constraints faced by islands as well as their potential for effective policy responses. This report embarks into this task focusing on islands from Sweden, Greece and Croatia.

Classifying island economies

How islands are defined and classified strongly affects whether their needs are recognised in statistics, funding formulas and policy design. Existing frameworks such as Eurostat’s NUTS 3 island typology and the OECD TL3 system provide a harmonised basis for international comparison but rely mainly on using geographic and demographic criteria. As a result, they often exclude smaller or mixed mainland-island areas and fail to capture functional interdependencies. National approaches, such as those in Scotland and Croatia, show that combining natural, population and administrative criteria can improve relevance, but no single system fully reflects the diversity of island that range from large, urbanised islands like Sicily or Crete to small, remote or bridged islands and complex archipelagos where intra-archipelago transport, labour and service flows are as critical as links to the mainland.

To address these gaps, the typology developed in this report adopts a hybrid, functional approach that integrate Eurostat’s Island and coastal classifications with the OECD’s metropolitan framework, distinguishing between island, coastal non-metropolitan, and other regions. This pragmatic system enhances international comparability while reflecting real-world connectivity and socio-economic dynamics. It enables policymakers to benchmark island and coastal regions against peers, identify structural strengths and vulnerabilities including diversification potential, service access gaps, or dependence on specific sectors; and design targeted, evidence-based interventions. Ultimately, more granular and functionally informed classifications not only improve analytical precision but also strengthen the policy visibility and inclusion of island economies within broader regional and cohesion frameworks.

Socio-economic trends: Demographic dynamism, weak productivity

At European level, island regions have combined robust demographic growth with weak economic outcomes over the last two decades.

The analysis draws on a harmonised sample of 47 OECD European island regions classified at the Territorial Level 3 (TL3) / NUTS 3 level, representing about 4% of all European regions. The selection follows the hybrid typology developed in this report, which integrates Eurostat’s Island and coastal classifications with the OECD’s metropolitan framework. For comparison, two additional groups are used: coastal non-metropolitan regions (regions that are coastal or where at least 50% of the population lives within 50 km of the coastline: around 170, or 16% of all regions) and all other regions (about 868, or 80%), excluding island nations such as Malta, Ireland, and the United Kingdom. The sample covers 21 OECD European countries and uses harmonised data from the OECD Regional Indicators database for 2001-2021, ensuring cross-country comparability of GDP, employment, population, and firm characteristics. This provides a consistent basis for benchmarking island performance against comparable regional types.

Within Europe, island regions form a small but distinct group. They represent only about 4% of all NUTS 3 units (47 out of 1 348), yet between 2001 and 2021 their population grew by 9.3%, while GDP increased by just 5% and labour productivity fell by 6%. Over the same period, non-metropolitan coastal regions achieved 16% GDP growth and 5% productivity gains, and other regions recorded 37% GDP growth and 14% productivity growth.

Between 2001 and 2021, the average island-region population increased from 276 000 to 301 000 inhabitants, representing an expansion of 9.3% overall or annually, 0.42%. This was almost double the growth in “other” regions (+5.3%) and nearly triple that in coastal non-metropolitan regions (+3.3%, annually 0.16%). Yet this demographic dynamism has not translated into comparable gains in output or productivity.

Population-weighted GDP in island regions rose from USD 15 billion in 2001 to USD 16 billion in 2021, an aggregate annual increase of 0,23%. Over the same period, coastal non-metropolitan regions grew annually by 0.7% and other regions by 1.5%.

As a result, GDP per capita in island regions fell from about USD 28 000 to USD 26 000 (annually by -0.22%), whereas it rose from USD 30 000 to 33 000 in coastal non-metropolitan regions and from USD 36 000 to 44 000 in other regions. This is equivalent to average annual increases of about 0.5% and 1.0%, respectively (calculated using the compounded annual growth rate formula). If island GDP had grown at the coastal rate, island GDP would today be roughly USD 1.8 billion higher, and if GDP per capita had followed the coastal trajectory, it would stand at around USD 31 000 instead of USD 26 000.

Labour productivity (measured as gross value added, GVA, per worker) has declined 0.32% annually in island regions from USD 68 000 to USD 63 000 between 2001 and 2021. In contrast in coastal non-metropolitan regions productivity increased 0.24% annually and in other regions 0.61%. Over the same period, island GVA fell by 3.7% even as employment grew by 3%, implying that new jobs have largely emerged in lower-value activities, in contrast to other regions where both GVA and employment grew 27% and 12%, respectively. (All annual averages are calculated using the compounded annual growth rate formula).

While many factors contributed to these trends the sectoral profiles of islands reinforce this pattern. In 2021, trade and services accounted for roughly 30% of island employment, followed by public administration with around 25%, and arts and recreation, professional and scientific services, and agriculture each about 9%. Employment growth has been fastest in real estate (2.76% per year) and professional and scientific services (2.03%), with smaller increases in arts and recreation (1.0%) and trade and services (0.7%), while jobs in agriculture (-1.5%) and manufacturing (-1.3%) have declined. This concentration in low-productivity, service-oriented activities including in trade, public administration, and tourism-related services, limits value creation and innovation potential, while the decline of higher-productivity sectors like manufacturing, information and communication, and advanced professional services reduces overall competitiveness and capacity for sustained income growth.

In terms of productivity, financial and insurance activities are now the most productive sector in island with GVA per worker rising from USD 110 000 to 130 000 (+18 000), and agriculture has recorded the highest productivity growth (1.9% annual). In contrast declines occurred in professional and scientific services and arts and recreation (-1.9% each), trade and services (-1.0%), with information and communication and manufacturing broadly stagnant.

In addition to sector specialisation, islands face difficulties in scaling up firms. Island regions have around 7 firms per 100 inhabitants, like coastal non-metropolitan regions (around 7) and slightly higher than other regions (around 6.6). However, about 60% of firms are self-employed entities (providing 36% of jobs), 36% are small firms with 1-9 employees (accounting for another 36% of employment), and only 3.8% have more than 10 employees. These larger firms still employ 45% of workers, compared with 5.5% of firms and 71% of employment in other regions

The “cost of insularity”: Connectivity, services and infrastructure

Island regions face a “cost of insularity” that affects residents, firms and governments. Case studies from Croatia, Greece and Sweden find that insularity is associated with significantly higher costs in transport and public services, and with generally higher housing and land prices in several cases, with implications for competitiveness and ability to deliver well-being standards.

In Sweden, island travel costs are substantially higher than in comparable mainland areas. Econometric estimates for Gotland and Öckerö suggest that, for a standard trip to Stockholm, travel costs are around 166% higher for island residents and just over 300% higher for island businesses, than for comparable mainland municipalities, even after controlling for remoteness.

• A single one-way ferry trip to the mainland from Gotland (Sweden) costs roughly EUR 124 per passenger and EUR 324 per business, compared with EUR 10-12 from the island municipality of Öckerö (Sweden).

• In Croatia, local government spending per capita is 54% higher in island municipalities; econometric analysis indicates an average 29% premium once geography and demography are controlled for, and a 12-27% gap even within the same county. Spending exceeds mainland levels particularly in health (+161%), public order (+74%), housing (+73%) and subsidies (+66%).

• In the two Swedish island municipalities studied, property prices per m² are roughly 80-130% higher than on the mainland, with average purchase prices and assessed values 75-80% higher and rents around 10% higher, for an overall housing price range of around 75-130% above mainland levels.

Previous European studies confirm similar penalties: business costs are around 10% higher in Corsica, GDP per capita about 7.4% lower in Sicily, and a “tax of insularity” estimated at 18-36% of GDP per capita in Sardinia. These cost differentials have both geographic foundations (e.g. distance, low density, connectivity gaps, land constraints) and institutional drivers such as limited competition, small administrative scale, overlapping roles and informal networks, which can reduce institutional efficiency and accountability, especially on smaller islands. Larger islands with populations above 500 000 tend to face fewer institutional inefficiencies.

The intensity of the 'insularity penalty' varies depending on island type and policy choices.

• In Greece, island GDP per capita is generally similar to mainland averages. However, this masks significant differences in tourism intensity, with islands experiencing up to 70 overnight stays per inhabitant annually, compared to just 10 on the mainland. This creates seasonal pressures on infrastructure and housing. Econometric models indicate that, when controlling for distance to Athens, island regions are slightly more positively associated with GDP per capita, while greater distance from Athens is consistently linked to lower GDP. This suggests that remoteness, rather than insularity itself, is the primary factor affecting economic performance.

• In Croatia, higher local spending reflects not only isolation but also tourism and environmental pressures, including a higher share of protected land in island municipalities.

• In Sweden, high ferry costs in Gotland contrast sharply with low, subsidised costs in Öckerö, demonstrating that policy design can offset geographic constraints.

To measure the cost of insularity in a comparable way, the report presents a flexible toolkit that combines descriptive statistics, transport-cost estimators for passengers and freight, econometric analyses of specific cost categories (land, rent, infrastructure, public services), econometric analysis of government expenditure, and GDP per capita models for international comparison. Costs are allocated to their primary drivers to avoid double counting, and island data are compared with similar mainland territories to isolate the “island effect”. The Croatian, Greek and Swedish cases show that robust estimates are feasible despite different data systems, provided indicators are harmonised.

Despite our efforts to harmonise data and ensure comparability, the results of this analysis should be interpreted with caution, as differences in data quality, territorial definitions, and methodological approaches across countries may affect cross-country comparability of estimated insularity costs.

Across countries, three recurring cost pressures stand out: high and often hidden transport and connectivity costs, systematically higher per-capita public-service costs due to small scale and dispersion, and dual housing and land-market pressures (price inflation in tourism hotspots and underuse in remote islands).

Green, blue and digital transitions: Islands as laboratories

Islands are not just places facing constraints and challenges. Although they are often perceived as vulnerable peripheries, the report shows they can become strategic laboratories for green, blue and digital transitions, with the right policy approach, on that moves from “place-blind” to “place-based” design. Conventional sectoral approaches typically neglect natural constraints and resource scarcity (limited arable land, scarce freshwater, fragile ecosystems, heavy dependence on imported food and energy), economic concentration (tourism, fisheries, public administration, construction), connectivity challenges (high transport, logistics and digital infrastructure costs), severe climate and environmental risks (rising sea levels, extreme weather, ocean acidification, saline intrusion and biodiversity loss) and complex governance settings (fragmented responsibilities, special statutes, overlapping competences). Because these factors are located and interact in specific territories, territorial impact assessments are needed to anticipate how national reforms may affect different islands, especially the smallest and most remote.

Tourism illustrates both opportunity and vulnerability. Before COVID-19, tourism represented on average 4.4% of GDP, 6.9% of employment and 21.5% of service exports across OECD countries. In 2020, international travel collapsed by around 75%, hitting island destinations hardest. Cases such as Santorini that depict how over-tourism has led to infrastructure strain, environmental pressure and reduced housing affordability, demonstrate why islands must shift towards more resilient, place-based models of tourism that manage environmental limits and social impacts.

Agriculture, fisheries and rural systems remain small in scale but offer significant potential. The report uses Trentino in Italy as a relevant example for islands with fragmented farm structures. While Trentino is not an island, its system shows how co-operative and vertically integrated organisations can overcome scale constraints by pooling production, marketing, finance and innovation. Similar co-operative or cluster models, supported by digital tools (precision agriculture, traceability, e-commerce), could help modernise island agri-food systems, improve incomes and diversify into local food industries, bioeconomy value chains and ecosystem services.

SMEs are central to island economies and community well-being. Their strengths include deep ties to local culture and natural heritage and strong potential for product differentiation and territorial branding. However, they face the structural constraints of small markets, high transport and energy costs, limited access to finance and skilled labour, administrative burdens and exposure to international shocks. Without targeted support, these constraints hinder scaling, innovation and integration into higher-value chains.

Green growth, circular economy and blue economy strategies are presented as integrated solutions rather than separate agendas. Green growth is critical where competing land and resource uses (agriculture, fisheries, tourism, mining, waste management) and climate variability generate acute trade-offs. The circular economy is especially relevant because small scale and isolation make reuse, repair and recycling both economically and environmentally attractive. Many islands remain among the most fossil-fuel-dependent territories in the world; initiatives such as the Clean Energy for EU Islands Initiative, which provides long-term support for renewable transitions through technical assistance, capacity building and financing, are highlighted as important enablers. The bioeconomy offers an additional pathway: by using renewable biological resources for energy, materials and food, islands can reduce import dependence, create green jobs and strengthen circular systems, provided biodiversity and local communities are adequately protected.

Human capital, culture and communities are framed as the core of inclusive island development. Policies should strengthen education and vocational education and training (VET) systems aligned with island labour markets and green, digital and maritime transitions; support youth and talent retention where out-migration and ageing are prominent; valorise cultural and natural heritage as productive assets underpinning creative industries, sustainable tourism, territorial branding and community-based initiatives; and ensure that groups at risk of exclusion (e.g. NEETs, the long-term unemployed, migrants and women returning to work) benefit from new opportunities. Well-being-oriented monitoring frameworks, including distributional indicators for low-income households, women, youth and older persons, are necessary to align economic, social and environmental objectives.

Connectivity, governance and networks are identified as critical enablers for these transitions. Islands often require disproportionately high per-capita infrastructure investments to ensure adequate transport, broadband, water, waste and energy systems. Within archipelagos, double or multiple insularity means that inter-island routes and ‘hub’ islands are as critical as mainland links, and should be explicitly considered in transport planning, PSO design and digital backbone investments.

Digitalisation (broadband, 5G, “Smart Island” initiatives) is essential for e-health, e-education, e-government and digital businesses. International and regional networks, such as the Smart Islands Initiative, the CPMR Islands Commission, and DAFNI, help islands pool resources, share knowledge and enhance political visibility. Yet many island authorities face limited administrative capacity, necessitating technical assistance, shared services and simplified access to funding. With integrated, place-based and people-centred strategies, the report concludes, islands can become leaders of sustainable transformation rather than passive recipients of compensatory policies.

Lessons from Croatia, Greece and Sweden

This study undertook qualitative analysis via field trip visits in island from Croatia, Greece and Sweden revealing how institutional context and firm structures shape outcomes. The main trends and performances of islands are briefly summarised:

• In Croatia, overall population declined by 9% between 2001 and 2021, but island-coastal counties performed better: Zadar grew by 4% and Dubrovnik-Neretva declined by only 1%, with stagnation after 2011. National GDP rose from USD 80 billion to 115 billion (CAGR 1.4%), while GDP grew faster in Zadar (2.6%) and Dubrovnik-Neretva (2.0%). Labour productivity increased sharply, by 59% in Zadar and 44% in Dubrovnik-Neretva, exceeding national and benchmark averages. Firm structures are dominated by small enterprises: firms with 1-9 employees account for 57-58% of all firms and around 40% of employment, while self-employment is relatively low (36-39%) compared with many island and coastal benchmarks. Firm density is 5.7-6.3 firms per 100 inhabitants, higher than the national average but below similar coastal regions (around 6.9). The region thus combines strong productivity gains and active small-business bases with demographic headwinds and infrastructure gaps, and faces the challenge of scaling up firms, diversifying beyond tourism and sustaining productivity growth amid population decline.

• In Greece, national population fell modestly (-1.5%) between 2001 and 2021, but the case-study islands grew strongly: Chios by 13.2% and the Dodecanese (including Kastellorizo) by 14.5%. Economic performance has been weaker: national GDP contracted slightly (-0.2% CAGR), with output declining by -0.1% in Chios and -0.7% in the Dodecanese, especially after 2011. Labour productivity fell by 12% nationally, 14% in Chios and a steep 35% in the Dodecanese, showing that employment growth has not translated into value creation. Firm structures are highly fragmented: self-employment represents 61% of firms nationally and rises to 65% in Chios and 55% in the Dodecanese, while small firms (1-9 employees) account for 41-43% of employment and larger firms are scarce. Firm density is high, particularly in the Dodecanese, indicating a dynamic but fragmented small-firm economy with limited scaling and innovation capacity. Across Greek islands more broadly, 114 inhabited islands host about 1.8 million residents (16% of the national population), around 40% of small islands have lost more than 10% of their population since 2000, GDP per capita in many islands is roughly 78% of the national average, and energy and transport costs can be up to 1.5 times higher than on the mainland. The core challenge is thus to reverse productivity decline, reduce structural dependence on micro-enterprises and convert demographic vitality into higher-value growth.

• In Sweden, population increased by 16.8% between 2001 and 2021, with Gotland growing by 4.9%, and the coastal TL3 region of Västra Götaland, where the island municipality of Öckerö is located, by 16.0%. Within Västra Götaland, however, Öckerö has experienced population stagnation and ageing and has not fully shared in the region’s demographic dynamism. Over the past decade, Öckerö has nonetheless recorded the second-highest municipal economic growth in Sweden, with unemployment at around 1.9% among young people (16-24) and 2.2% among the working-age population (18-65) in 2022, both well below national averages. At regional level, Economic performance has been strong: national GDP grew at 2.1% annually, compared with 1.4% in Gotland and 2.0% in Västra Götaland, with faster growth in the first decade. Labour productivity rose by 34% nationally, 33% in Gotland and 29% in Västra Götaland, over the same period. Firm structures differ markedly from the southern cases: self-employed firms represent 68-72% of enterprises, small firms (1-9 employees) account for 23-26% of firms, and large firms (more 10 employees) make up about 5% of firms but employ 55% of workers in Gotland and 72% in Västra Götaland. Firm density is very high standing at around 12 firms per 100 inhabitants in Gotland and 9 in Västra Götaland exceeding all benchmarks. Sweden has 267 570 islands, of which 984 are inhabited by roughly 93 000 residents living on islands without a fixed land connection to the mainland. Persistent challenges include higher freight and transport costs than on comparable mainland routes, limited fiscal space for small municipalities (in Öckerö about 93% of its revenues come from own sources such as local taxes) and ageing populations despite strong tourism inflows. The Swedish case shows that islands can perform well within mainstream frameworks where local autonomy, co-ordination and welfare systems are strong, but that smaller island municipalities can still struggle to share fully in regional prosperity.

Governance models reflect these differences. Sweden represents “integrated decentralisation”, with strong local autonomy and cohesive regional planning but limited statistical visibility for islands and some fiscal constraints. Croatia exemplifies “institutionalised co-ordination”, with a clear legal framework for islands, (Islands Act, National Island Development Plan and related programmes), an evolving evidence base built around MRDEUF’s Island Data and Indicators database and the national Register of Islands (Registar Otoka) rather than fully integrated island data systems, and strong EU-funded coherence, but persistent implementation capacity and infrastructure gaps. Greece offers a model of “constitutional recognition”, with explicit legal provisions for differentiated island policy (Article 101(4), Law 4770/2021, the Transport Equivalent Mechanism), but fragmented implementation, cross-ministry co-ordination gaps and strong dependence on central transfers (around 80% of local government budgets).

Concrete investment decisions mirror these frameworks. Croatia has 53 inhabited islands with about 127 800 residents, recognised in the Act on Regional Development as areas with specific development needs and governed by the dedicated Islands Act. Island development is financed through a mix of EU Cohesion Policy funds and national programmes. Under the National Island Development Plan 2021-2027 and the Integrated Territorial Programme (ITP) 2021-2027, approximately EUR 150 million in EU funds are earmarked exclusively for island development within an ITP budget exceeding EUR 1.5 billion. Despite this, substantial infrastructure gaps remain, especially in water supply and wastewater drainage systems and in broadband and ultra-fast broadband coverage on smaller and more remote islands. Programmes such as the Programme for Awarding Grants of Small Value to Island Employers, the “Croatian Island Product” label, and national transport schemes that include support for introducing electric ferries aim to strengthen local island economies and connectivity, but their impact is moderated by fragmented funding mechanisms, complex administrative procedures and limited administrative capacity at local level. In Greece, the General Secretariat for the Aegean and Island Policy leads island policy, supported by the Transport Equivalent Mechanism and the Gr-eco Islands Initiative (from 2021), which pilots renewable energy, electric mobility and digital governance on islands such as Chalki, Astypalea and Tilos, later extending to Kastellorizo and Symi. Complementary reforms include Energy Communities (Law 4513/2018), the Digital Transformation Strategy 2030 and the SYZEFXIS II broadband programme. Sweden has no dedicated island law; island development is embedded in regional growth policy, co‑ordinated by bodies such as Tillväxtverket and Trafikverket. The Gotland 2040 Strategy aims at climate neutrality by 2040 via renewable energy, industrial transition, eco-tourism and education (Campus Gotland, Gotland Green Centre).

Across these systems, common themes include the centrality of data and monitoring (Croatia’s IDI, Greek observatories in development, Swedish statistics reforms), dependence on EU funds in Croatia and Greece versus more self-financed models in Sweden, and convergence around green energy, digital connectivity, blue-economy diversification and demographic renewal as shared strategic goals.

More broadly, the comparative analysis highlights that how islands are classified and represented in statistics strongly shapes their visibility and policy relevance. Mixed NUTS 3 regions often conceal island realities, complicating performance assessment and investment targeting. At the European level, average productivity gains in island regions are concentrated in agriculture (+1.9 % per year) and financial services (+0.8 %), while trade and services, which is the largest employer and accounts for roughly 30 % of jobs, experienced slightly negative GVA growth (-0.3 %). This pattern of demographic resilience alongside weak economic outcomes is mirrored in the three case-study countries. Micro and small firms dominate across all territories with an average firm density of around seven firms per 100 inhabitants. This is comparable to coastal benchmarks but is below urban regions and thus limits competitive spillovers and scaling potential. Overall, governance quality, data availability and small-firm competitiveness play a greater role than geographical insularity in explaining performance differences.

Multi-level governance for island development

In addition to geography features, the quality of multi-level governance (MLG) (e.g. how national, regional and local institutions co-ordinate), use data and involve citizens also play a key role in shaping development paths and ability to delivery well-being standards. Insularity becomes either a constraint or an opportunity depending on whether governance is fragmented and centralised, or integrated, evidence-based and participatory.

Common governance challenges include fragmented responsibilities and blurred accountability (e.g. overlapping county-municipality roles in Croatia, shared but unclear mandates across central ministries, decentralised administrations and municipalities in Greece, and island interests being overshadowed in larger Swedish municipalities and regions), centralisation and limited local flexibility (with key policies such as transport, infrastructure, education and energy predominantly designed and financed at the centre), weak horizontal co-ordination across sectors (tourism, environment, transport and digitalisation often advancing in silos), capacity constraints in small administrations (limited technical staff to design, procure and monitor projects) and data gaps that render islands statistically “invisible”.

Financial complexity and limited citizen participation further complicate the picture: funding streams come from multiple national and EU programmes with varying rules, making them hard to navigate, and participation tends to be episodic despite the opportunities for close citizen-government interaction that small communities provide. Together, these issues create a systemic governance challenge that undermines policy coherence, delays implementation and reduces islands’ ability to turn assets into opportunities.

Against this backdrop, the report highlights country specific approaches:

• Croatia has moved from fragmented arrangements to an integrated system anchored in the 2018 Islands Act and the 2021-2027 National Island Development Plan, co-ordinated by a Directorate for Islands, a Islands Council and county-level island co-ordinators, supported by a 148-indicator monitoring system and annual parliamentary reporting. The representing one of Europe’s most advanced island data frameworks.

• Greece, despite being among the most centralised OECD countries, has created the Island Policy Council and the General Secretariat for the Aegean and Island Policy as core co-ordination mechanisms and is developing tools such as an Island Dashboard, Price Observatory and Island Barometer, alongside Territorial Impact Assessments and options for asymmetric decentralisation.

• Sweden, with mature decentralisation and strong welfare systems, co-ordinates through mechanisms such as SALAR and the Forum for Sustainable Regional Development. The key driver of future governance change, however, is the ongoing SVESAM inquiry, which is examining how islands could be more explicitly integrated into national strategies, fiscal equalisation and new instruments such as an Islands Forum or island-sensitive impact assessments.

Emerging good practices include legal recognition of insularity, dual co-ordination mechanisms combining political councils with technical networks, advanced data and monitoring systems, fiscal and financing reforms (cost equalisation reviews, differentiated funding instruments), more participatory and learning-based governance, and Integrated Territorial Programmes that use EU instruments to bundle investments around shared island priorities. A structured framework for island-sensitive MLG is proposed around five pillars: legal and strategic foundations, institutional co-ordination, evidence and impact assessment, financing and fiscal equity, and capacity, participation and learning. Scotland’s Island Communities Impact Assessments illustrate how “island-proofing” legislation can systematically embed island realities in policymaking. Governance reforms are linked directly to green and digital transitions, as shown by initiatives such as GR-eco Islands in Greece and sustainable energy communities in Sweden, which use climate and digital investments to pilot more integrated, adaptive governance approaches.

Conclusions

This assessment reveals some patterns across island economies that include demographic resilience combined with weak productivity growth; high and often hidden costs of insularity in transport, services and housing; fragmented but evolving governance frameworks; and growing pressure. Opportunities are present linked to green, blue and digital transitions.

The next section distils the main policy implications that emerge from the evidence, providing a bridge between the diagnostic findings and the more detailed, operational recommendations that follow.

Policy implications

The analysis and findings of the report point to a coherent policy agenda for island economies in OECD countries that goes beyond compensating insularity to building competitive, resilient and inclusive territories across the following policy actions:

1. Refine island definitions and typologies to guide place-based policy. More advanced functional classifications that capture metropolitan versus non-metropolitan islands, archipelagic interdependencies and coastal-island linkages are essential to make island realities visible in statistics, funding formulas and regulatory impact assessments. Greater spatial granularity, combined with economic, demographic and resilience dimensions, should underpin eligibility for regional and cohesion policies.

2. Rebalance from demographic growth to productivity-led prosperity. Island regions have achieved 9.3% population growth (2001-2021) but only 5% GDP growth and a 6% decline in labour productivity, leaving GDP per capita around USD 26 000 and roughly USD 4 000 below where it would be if they had matched coastal-region growth rates. Policy must shift emphasis from supporting population and low-productivity employment to raising value-added through innovation, skills, firm upgrading and sectoral diversification; especially in trade and services, where GVA has fallen (-0.3% CAGR) despite employing about 30% of workers. Future monitoring frameworks should include productivity and value-added indicators as core performance metrics for island economies.

3. Use the “cost of insularity” toolkit to redesign connectivity, service and housing policies. The analysis estimates penalties in travel costs are up to 300% higher in Swedish islands, Croatian island municipalities spending in per capita 54% higher (with sectoral gaps of +161% in health and +73% in housing), and property prices 75-130% higher than mainland levels. These results warrant a transition from compensation schemes to structural reforms including targeted investment in multimodal transport and ferries, competitive and regulated connectivity markets, more efficient and co-operative models of public-service provision, and housing policies explicitly linked to affordability and population retention.

4. Make islands pilots for green, circular and blue transitions. Islands’ compact scale and clear spatial boundaries make them ideal testbeds for integrated energy, transport, tourism and land-use strategies. Policy should accelerate renewable deployment and energy communities, building on initiatives like the Clean Energy for EU Islands and GR-eco Islands; embed circular-economy principles across water, waste and resource systems; and develop sustainable blue-economy activities (e.g. offshore renewables, sustainable fisheries, marine bioeconomy) that both diversify economies and protect ecosystems. Establishing local innovation ecosystems such as living labs and island innovation hubs, can link SMEs, academia and communities to co-develop solutions.

5. Strengthen SME and agri-food ecosystems through co-operative and cluster models. Given that around 60% of island firms are self-employed and only 3.8% have more than 10 employees, policies must prioritise scaling and upgrading rather than simply increasing firm numbers. Co-operative and cluster approaches modelled on examples like Trentino’s system (1.5-hectare family farms organised through a federation of over 500 enterprises and 280 000 members) can help islands pool production, marketing and finance, access digital tools and integrate into higher-value chains in tourism, agri-food, creative industries and green technologies.

6. Invest in people, skills and social inclusion as transformation levers. To counteract ageing and youth out-migration, especially in small islands where more than 10% of the population has been lost since 2000, policies should expand VET and higher education linked to green, digital and maritime jobs; support youth and talent retention; and ensure that vulnerable groups (NEETs, long-term unemployed, migrants, women) are integrated into new opportunities. Cultural and natural heritage should be mobilised as productive assets, with well-being indicators used systematically to track distributional outcomes. Housing, childcare and digital access policies should also be aligned with inclusion goals to make island living more viable for young families and workers.

7. Elevate multi-level governance and data as “infrastructure” for island development. The quality of governance (e.g. legal frameworks like Croatia’s Islands Act, co-ordination bodies such as Greece’s Island Policy Council, decentralised but island-sensitive models like Sweden’s, and tools such as 148-indicator datasets, dashboards, observatories and impact assessments) emerges as more decisive than geography. OECD and national policy should support island-sensitive MLG built on clear legal recognition, robust co-ordination across levels and sectors, disaggregated data and territorial impact assessments, fiscal and financing arrangements that reflect higher service costs, and sustained investment in local capacity, participation and learning.

8. Leverage international networks as multipliers. Networks such as the Smart Islands Initiative, CPMR Islands Commission, and DAFNI, along with Integrated Territorial Programmes and EU cohesion instruments, should be used strategically to bundle investments, share innovations and amplify island voices. Country experiences offer scalable models for joint action including Croatia’s EUR 20 million annual island programmes and EUR 150 million earmarked within a EUR 1.57 billion programme; Greece’s Gr-eco Islands and Transport Equivalent Mechanism; Sweden’s regional strategy “Our Gotland 2040” for Gotland, which integrates a 2040 near-zero-emissions objective. For non-EU OECD members, equivalent mechanisms under national regional policy frameworks should be adapted to ensure global applicability of these approaches.

Taken together, these findings imply that EU-level policy frameworks need to move beyond treating islands simply as a sub-category of “coastal areas”. The combination of structural insularity costs (notably higher transport, housing and public-service costs), distinctive sectoral specialisation and governance challenges documented in this report shows that islands require a distinctive, dedicated and comprehensive EU strategy, separate from but complementary to approaches for coastal communities. Such a strategy should translate the island-sensitive, place-based principles outlined here into a coherent framework at EU level, ensuring that Cohesion Policy, regional aid schemes and green and digital transition instruments explicitly recognise insularity, and the diversity of island types identified in this report.

Building on these core messages, the next section bridges from strategic implications to implementation. It sets out an integrated framework of operational recommendations, instruments and governance mechanisms through which this agenda can be applied in practice, both within and beyond the EU context.

Recommendations

This section translates the report’s policy implications into an integrated set of operational recommendations. It consolidates lessons from Croatia, Greece, Sweden, and other island territories, and shows how these can be embedded in national frameworks and the forthcoming EU Cohesion Policy 2028-2035. The recommendations are structured around three strategic pillars and ten thematic priorities, shifting the focus from compensation to transformation. They also identify measurable productivity, inclusion and sustainability indicators to track progress.

Strategic policy framework for island transformation

Island policies should shift from viewing islands as subsidy-dependent peripheries to recognizing them as transformation laboratories for green, digital, and inclusive growth. Experiences from Gotland (Sweden), with its 2040 climate-neutrality strategy, and from Greece’s GR-eco Islands initiative, demonstrate how islands can pioneer integrated reforms in energy, mobility, and digitalisation that can later be scaled nationally.

To achieve this, island characteristics must be systematically embedded in national legislation, fiscal frameworks and EU policy instruments. Examples include Croatia’s Islands Act (2018) and National Island Development Plan (2021-2027), as well as Greece’s constitutional recognition of insularity (Article 101(4) and Law 4770/2021). These frameworks support a shift from ad hoc subsidies to data-driven and outcome-oriented investments that enhance productivity, diversify island economies and improve well-being, drawing on tools such as Croatia’s 148-indicator island dataset, Greece’s Island Dashboard and Price Observatory.

At EU level, this agenda should be underpinned by a distinctive, comprehensive strategy for European Islands, clearly differentiated from other broader policy frameworks. For EU Member States, these priorities should be fully integrated into Cohesion Policy 2028-2035 through:

• Dedicated island envelopes and financing windows under Policy Objective 5 (“Europe closer to citizens”), building on models such as the Integrated Territorial Programme.

• Smart Specialisation Strategies (S3) that link blue, green and digital innovation, as seen in Greek and Croatian regional strategies for renewables, tourism and the blue economy.

• Island-sensitive indicators and conditionalities embedded in programme design and monitoring, following Croatia’s annual parliamentary reporting on island development.

Embedding these reforms will position European islands as high-value testbeds for resilience and innovation, demonstrating how place-based policy can advance productivity, sustainability and social inclusion.

While many examples are drawn from EU contexts, these mechanisms can be adapted to national regional-development frameworks in other OECD countries.

Governance, legal and data foundations

Strategic reframing and governance modernisation

1. Treat islands as testbeds for innovation and integrated governance.

• Embed insularity in law and adopt multiannual island strategies aligned with EU programming cycles, following Croatia’s Islands Act and Greece’s GR-eco Islands Strategy.

• Establish inter-ministerial co-ordination bodies and island focal points across ministries, drawing on Croatia’s Directorate for Islands, Islands Council, and Greece’s Island Policy Council and General Secretariat for the Aegean and Island Policy (GSAIP).

• Institutionalise Island/Territorial Impact Assessments for major reforms, as piloted through Scotland’s Island Communities Impact Assessments (ICIAs).

• Promote inter-municipal co-operation and shared services to overcome small-scale administrative constraints, as seen in Öckerö (Sweden).

• Provide technical assistance and academic partnerships, modelled on Campus Gotland and the Gotland Green Centre, or Croatian and Greek university collaborations.

• Consolidate fragmented funding into multiannual, outcome-based block grants, building on Croatia’s bundling of EU and national resources.

• Foster participatory governance through digital consultations and island forums, leveraging community cohesion found in many Greek and Scandinavian islands.

• Use green and digital projects as pilots for integrated governance and citizen engagement (e.g. Chalki, Astypalea and Tilos under GR-eco Islands).

Data, typologies and evidence-based policymaking

2. Use data as a strategic instrument for policymaking and monitoring.

• Develop standard island datasets at TL3 or municipal level, building on Croatia’s integrated island data and Sweden’s improved typologies.

• Create micro-territory registers for small and depopulating islands to ensure visibility (noting that 40% of small Greek islands have lost over 10% of their population).

• Employ functional typologies that reflect commuting and service linkages, particularly for archipelagos such as the Aegean and Adriatic.

• Align island definitions with eligibility for Cohesion and regional aid schemes.

• Embed economic, demographic and resilience indicators (diversification, ageing, innovation, climate risk) following Croatia’s and Greece’s systems.

• Convene national-EU working groups to harmonise typologies and create a European Island Data and Knowledge Framework with open data access and OECD-aligned indicators.

Multi-level co-ordination and international networking

3. Strengthen co-ordination and amplify island representation across governance levels.

• Establish or reinforce national island councils and technical units to align sectoral policies, as in Croatia and Greece, and in proposals for a Swedish Islands Forum.

• Encourage inter-island co-operation and shared services to achieve scale economies, especially in multi-island regions.

• Promote participation in European and global island networks (CPMR, ESIN, OTIE, DAFNI, Local2030, Smart Islands Initiative).

• Support peer-learning platforms (e.g. Local2030 Islands Network, Interreg collaborations) for governance and innovation sharing.

• Align national strategies with OECD and EU frameworks on green, digital and regional transitions.

Cross-cutting implementation and accountability

4. Integrate reforms across policy domains with measurable accountability.

• Combine green, digital, social and governance reforms in unified strategies (e.g. GR-eco Islands, Gotland 2040).

• Adopt harmonised island indicators for productivity, cost-of-insularity and well-being (Croatia’s IDI, Greek Dashboards, Swedish statistics).

• Publish annual progress reports to national parliaments, as in Croatia, ensuring transparency and accountability.

• Embed resilience and diversification targets in all funding instruments and scale successful pilots across other regions.

Economic, social and environmental transformation

Economic diversification and SME competitiveness

5. Build resilient and diversified island economies beyond single-sector dependence.

• Support blue-economy, renewable-energy, agri-food, creative-industry, circular-economy and digital-service development, drawing on initiatives such as Croatia’s blue-economy and innovation programmes (e.g. InnovaMare) and Greece’s energy communities.

• Provide SME grants, guarantees, innovation vouchers and export schemes, addressing challenges faced by micro-enterprises (notably where self-employment exceeds 60%).

• Link tourism to certified local agri-food and cultural assets, building on Croatian Island Product and Aegean regional branding.

• Offer scale-up grants and soft loans tied to productivity and employment milestones.

• Deliver management training, co-operative development and export-readiness programmes, inspired by Trentino’s co-operative model.

• Create Island Business Observatories (and associated business barometers) to track entrepreneurship, access to finance, cost and tax burdens, seasonal demand patterns and skilled-labour gaps, providing a robust evidence base for SME policy in islands.

• Encourage export consortia and geographical labels (e.g. for Aegean and Nordic products).

• Promote year-round, digital and value-added tourism, mitigating over-tourism in hotspots such as Santorini.

Human capital, skills and demographic resilience

6. Place people, skills, and heritage at the centre of island renewal.

• Map skills need and expand local or online vocational and digital training in priority sectors (tourism, renewables, logistics, maritime services).

• Focus on green, maritime and ICT skills, targeting NEETs, women and migrants in ageing or depopulating islands.

• Implement youth-retention schemes especially in islands facing population decline such as return scholarships, start-up grants, and housing support.

• Facilitate labour mobility through subsidised travel and mutual recognition of qualifications, following Greek transport-equivalent schemes.

• Develop island-focused VET and higher education tracks, like Campus Gotland and maritime/tourism schools in the Aegean.

• Set demographic and skills retention targets, attracting young families and professionals through green and digital employment opportunities.

• Launch sector-specific recruitment campaigns in renewables, logistics and digital services linked to GR-eco Islands and Clean Energy for EU Islands.

Fiscal frameworks and cost-of-insularity reduction

7. Move from permanent compensation to structural cost reduction and fiscal fairness.

• Introduce insularity coefficients in fiscal equalisation formulas, as in Sweden, addressing higher per-capita spending in island municipalities.

• Link funding to performance indicators such as access times and service efficiency, as in Croatia’s parliamentary reporting and Greek price observatories.

• Develop national island data platforms by upgrading existing tools, such as MRDEUF’s Island Data and Indicators and the Registar otoka (Register of Islands), to integrate cost-of-insularity, transport and housing data for evidence-based fiscal decisions.

• Differentiate housing policy by island typology to better regulate rentals in high-pressure areas (e.g. Santorini) and rehabilitate underused stock in remote ones.

• Create shared service centres and digital back offices to address limited administrative capacity.

• Reorient subsidies towards transformative investment (green logistics, digital infrastructure, circular economy), leveraging pilots in Croatia and Greece.

Environmental resilience and the green-blue transition

8. Position islands as laboratories for sustainability and resilience innovation.

• Require climate and biodiversity impact assessments for major investments.

• Scale integrated water, waste and circular-economy projects, extending Circular Island hubs and Aegean waste management pilots.

• Apply tourism carrying capacities and zoning in sensitive areas to mitigate over-tourism.

• Align Smart Specialisation Strategies (S3) with island advantages in marine biotech, fisheries, and low-carbon mobility.

• Establish Island Innovation Hubs and living labs linking SMEs, academia and communities.

• Modernise agriculture and fisheries through digital tools, traceability and e-commerce, and promote women’s and youth inclusion in these sectors.

• Develop circular-blue-bioeconomy models integrating waste, tourism and agri-food value chains.

• Mainstream climate adaptation and disaster-risk management with dedicated resilience financing.

• Incorporate natural and cultural capital into local finance mechanisms (eco-certifications, visitor fees, conservation funds).

Connectivity, investment and EU Cohesion alignment

Connectivity, infrastructure and digitalisation

9. Ensure universal, affordable and sustainable connectivity, both physical and digital.

• Implement integrated transport plans with clear minimum service standards and affordability safeguards, drawing lessons from Sweden’s Gotland and Öckerö on subsidised, procured ferry links) and from Greece’s PSO ferry routes as structured public service obligations.

• Create multi-island transport consortia for joint procurement to reduce costs.

• Conduct Cost-of-Insularity Analyses to quantify transport, housing and service gaps, using methodologies tested in Croatia, Greece and Sweden.

• Transition from opaque subsidies to transparent PSO systems with open route and cost data.

• Commit to universal broadband and 5G coverage on all inhabited islands by a target year, addressing current shortfalls (e.g. only 4.7% of Croatian island residents have ultra-fast broadband).

• Link connectivity investments to productivity and digitalisation outcomes (SME exports, e-services).

• Embed digitalisation in public service delivery such as e-government, telehealth, and remote learning, using SYZEFXIS II (Greece) and digital municipal services (Sweden, Croatia) as models.

• Encourage telework and flexible housing to attract new residents to depopulated islands.

• Prioritise low-emission transport (electric ferries, efficient ports, sustainable air links) building on Croatia’s and Scandinavia’s efforts to introduce cleaner island transport.

Financing, investment and EU Cohesion alignment

10. Align investment and finance with measurable transformation goals.

• Create dedicated island envelopes in Cohesion Policy 2028-2035, following examples of targeted programmes for Croatia’s 53 inhabited islands.

• Introduce island-sensitive financing windows under Policy Objective 5.

• Scale up pilot projects through REPowerEU, Digital Europe, and Interreg, leveraging GR-eco Islands, electric ferries and circular hubs.

• Facilitate public-private partnerships (PPPs), blended finance and green/blue bonds, tailored to high per-capita infrastructure costs in islands.

• Strengthen alignment between national, EU and private funding to sustain long-term transformation.

Synthesis of operational recommendations

 

Thematic area	Recommendations	Policy instruments / Good practices	Results and indicators
Strategic reframing & governance modernisation	• Embed insularity in law and national strategies. • Create inter-ministerial co-ordination bodies and island focal points. • Introduce Island/Territorial Impact Assessments. • Consolidate fragmented funding into outcome-based island programmes. • Foster participatory and digital governance.	• Croatia’s Islands Act and National Island Development Plan. • Greece’s GR-eco Islands Strategy and GSAIP. • Scotland’s Island Communities Impact Assessments (ICIAs). • Öckerö (Sweden) inter-municipal co‑operation model.	• Legal recognition of insularity in all Member States. • Integrated multiannual island programmes operational. • Increased citizen participation and transparency.
Data, typologies & evidence-based policymaking	• Develop harmonised island datasets at TL3/municipal level. • Create micro-island registers and functional typologies. • Embed economic, demographic and climate indicators. • Establish an EU-national Island Data and Knowledge Framework.	• Croatia’s Island Data and Indicators (148-indicator island dataset) and the national Registar otoka (Register of Islands) supporting territorial analysis and monitoring. • Greece’s Island Dashboard and Price Observatory. • Sweden’s updated island statistics. • OECD indicator harmonisation standards.	• Comparable island data across Member States. • Open-data platforms for monitoring. • Cohesion and aid eligibility accurately reflect insularity.
Multi-level co-ordination & international networking	• Establish or strengthen National Island Councils and technical co-ordination units. • Support inter-island co-operation and shared services. • Engage actively in international island networks and peer learning.	• Croatia’s National Islands Council. • Greece’s Island Policy Council and GSAIP. • Networks: CPMR, ESIN, OTIE, DAFNI, Local2030.	• Stronger cross-sector and cross-level alignment. • Shared service efficiencies and cost savings. • Increased Island voice in EU and global forums.
Cross-cutting implementation & accountability	• Integrate green, digital, social and governance reforms in single island strategies. • Adopt harmonised indicators for productivity, costs and well-being. • Publish annual progress reports to national parliaments.	• Gotland 2040 and GR-eco Islands as integrated models. • Croatia’s annual parliamentary reporting on islands. • OECD Well-being and Productivity frameworks.	• Improved policy coherence. • Transparent monitoring of island development. • Measurable gains in productivity and sustainability.
Economic diversification & SME competitiveness	• Support blue, green, digital, agri-food and circular sectors. • Link tourism to certified local products and boost value-added chains. • Strengthen SME finance (grants, guarantees, vouchers). • Develop co-operatives, export consortia and business observatories.	• Croatian Island Product” label for certified, high-quality local products. • Croatian Small-value grant schemes for island employers and SME support instruments. • Croatian InnovaMare blue-economy innovation initiative (Digital Innovation Hub + Living Lab • Aegean regional branding and co-operative models. • Trentino co-operative model.	• Broader economic base and year-round employment. • Higher SME productivity and innovation uptake. • Increased exports and visibility of island-branded products.
Human capital, skills & demographic resilience	• Map and address local skills need. • Deliver green, maritime, and digital training locally or online. • Launch youth-retention and return schemes. • Facilitate labour mobility and recognition of qualifications. • Support island-focused VET and higher education.	• Campus Gotland tailored programmes. • Greek transport equivalent scheme. • Maritime/tourism schools in Aegean islands. • Croatia’s demographic programmes.	• Reversal of population decline in 50% of small islands. • Increased youth and female employment. • Stronger Island skill base in renewable and digital sectors.
Fiscal frameworks & cost-of-insularity reduction	• Include insularity coefficients in fiscal equalisation formulas. • Link transfers to performance indicators. • Develop national cost and price observatories. • Differentiate housing policies by island type. • Reorient subsidies toward transformative investments.	• Sweden’s subsidised island ferry services for Gotland and Öckerö, which lower ticket costs for residents and businesses and reflect public funding of insularity-related transport costs.. • Croatia’s Island Data and Indicators and Registar otoka (Register of Islands), which provide detailed island information to support targeted funding and monitoring of island municipalities • Greece’s transport equivalent policy, compensating island firms for a share of their freight transport costs to the mainland , and housing regulation in Santorini and similar cases.	• Reduced cost-of-insularity gap. • Fairer fiscal treatment of island municipalities. • Improved housing affordability and service delivery.
Environmental resilience & green-blue transitions	• Require climate/biodiversity assessments for investments. • Scale up circular-economy and waste management pilots. • Apply tourism carrying capacities in fragile areas. • Promote Island innovation hubs and living labs. • Support blue-bioeconomy, sustainable fisheries and eco-finance.	• InnovaMare blue-economy innovation and living-lab initiative; circular-economy improvements in waste and water systems highlighted in island development plans. (Croatia) • GR-eco Islands (Greece). • Campus Gotland innovation partnerships. • Nordic eco-tourism models.	• Climate-adapted, low-carbon island economies. • Resource efficiency and biodiversity gains. • New green and blue jobs for women and youth.
Connectivity, infrastructure & digitalisation	• Develop integrated transport plans with fare caps and minimum standards. • Create multi-island transport consortia. • Conduct Cost-of-Insularity Analyses. • Achieve universal broadband and 5G. • Tie digitalisation to service delivery and telework.	• Greece’s PSO routes and Transport Equivalent Mechanism. • Sweden’s Gotland and Öckerö ferry systems. • Croatia’s broadband expansion pilots. • SYZEFXIS II digital services (Greece).	• Reduced travel and service gaps. • =95% broadband coverage in inhabited islands. • Enhanced digital public services and telework uptake.
Financing, investment & EU cohesion alignment	• Create dedicated island envelopes in Cohesion Policy 2028-2035. • Open island-sensitive financing windows under PO5. • Scale up pilot projects via REPowerEU, Digital Europe, Interreg. • Facilitate PPPs, blended finance and green/blue bonds.	• Integrated Territorial Programme. • GR-eco Islands, REPowerEU, Interreg. • National PPP and bond frameworks.	• Predictable, multi-source investment pipelines. • Scaled-up Island innovation pilots. • Greater private-sector participation in infrastructure.

Key to Acronyms: PO5: Policy Objective 5 of EU Cohesion Policy - “Europe closer to citizens. GSAIP: General Secretariat for the Aegean and Island Policy (Greece). IDI: Island Development Indicators (Croatia). PSO: Public Service Obligation (transport scheme). S3: Smart Specialisation Strategy.