This report provides a practical guide for national, regional and local policymakers to support evidence-based decision-making to improve well-being, resilience and long-term development outcomes in island regions. Combining quantitative analysis with case studies, it sets out recommendations to raise island visibility in national and EU strategies, improve the efficiency of public services, and strengthen innovation ecosystems adapted to islands’ specific needs.
Chapter 1 synthesises key analytical findings on island typologies, socio-economic performance, insularity costs and governance models in Croatia, Greece and Sweden, and translates them into strategic directions and operational recommendations for policymakers. Chapter 2 describes the characteristics of island economies and the constraints they face. Chapter 3 presents a new approach to island classification, emphasising the importance of accurate data and comparative analysis. Chapter 4 reviews the socio-economic trends in European islands, identifying key drivers of performance. Chapter 5 focuses on measuring the costs of insularity and suggests methodologies for improving data quality and policy targeting. Chapter 6 discusses leveraging island assets through innovation, sustainable development, and Smart Specialisation. Chapter 7 examines lessons from Croatia, Greece, and Sweden on island-specific governance and policy delivery. Chapter 8 concludes with an operational framework for multi-level governance, island-proofing, and policy implementation.
Island economies share constraints linked to insularity such as small size, physical discontinuity, isolation and fragmentation, which translate into small markets, limited economies of scale, high transport and service-delivery costs, dependence on external inputs, and seasonal employment. These vulnerabilities are amplified by globalisation, digitalisation, demographic ageing and climate change, contributing to productivity and income gaps, higher unemployment and public service delivery costs. At EU scale, the report notes that about 94% of European islands and outermost regions record GDP per capita below the EU mean, and unemployment rates in many island regions are reported as 1.5 to 4 times the EU average.
To strengthen comparability and policy targeting, the report advances a new approach to island classification that recognises the diversity of island contexts and the need for more accurate, and more comparable data. It adopts a hybrid territorial approach that (i) prioritises Territorial Level 3 (TL3) regions classified as islands comprising 47 regions (about 4% of 1 348 TL3 regions in Europe) and (ii) includes 170 non-island coastal regions where at least 50% of the population lives within 50 km of the coastline (16% of regions). The approach excludes metropolitan regions to avoid over-representing large coastal agglomerations. This hybrid approach is designed to reflect diverse island realities (including archipelagic interdependencies) while preserving cross-country comparability for OECD analysis.
Evidence from 47 island regions from Europe between 2001 and 2021 shows a stronger population growth and weaker economic outcomes than comparable regions, with underperformance in GDP, productivity and employment. Structural fragmentation is reflected in economies dominated by small firms and self-employment, alongside a shift in specialisation from industry towards services. From 2001 to 2021, islands populations grew by over 9%, more than coastal non-metro (3%) and other regions (5%). This pattern is consistent with the report’s framing of islands as attractive territories for visitors and, in some contexts, amenity migrants and mobile workers. Structural fragmentation is also reflected in business structure: small firms (1-9 employees) account for 36% of firms and 36% of employment in island regions, while firms with more 10 employees represent only 3.8% of firms but employ 45% of workers, highlighting scaling constraints. In terms of economic sectors, trade and services are the major employer (about 30%), followed by public administration (around 25%), while employment has declined in manufacturing and agriculture.
The report also documents the “cost of insularity” using evidence from Croatia, Greece and Sweden, where transport costs can exceed mainland benchmarks by over 300% in some cases, local government expenditure per capita can be 30-50% higher, and housing prices can be 75-130% higher in some island municipalities. It proposes methodological tools to measure these costs, improve data quality and enable more targeted fiscal, infrastructure and connectivity policies.
Given these specificities, a place-based policy framework is recommended to leverage islands’ natural and cultural assets, strategic location and community networks. Islands are positioned as innovation laboratories for Smart Specialisation, digital transformation and skills development, and for advancing green, circular and blue economy transitions, including sustainable tourism that balances economic gains with environmental and social limits.
Case studies from Croatia, Greece and Sweden show that development outcomes are shaped not only by geography, but also by governance quality, data availability and the ability of small firms to upgrade and scale, with different contexts but recurring challenges (connectivity, seasonality, service delivery, and visibility in policy/data). In Croatia, the island-coastal counties of Zadar and Dubrovnik-Neretva recorded strong gains in GDP and productivity (GDP up 2.0% and 2.6%, respectively), but they still face infrastructure gaps and a high reliance on tourism. In Greece, several islands saw population growth (for example, Chios +13%) but declining GDP and productivity (Chios productivity -14%), alongside high connectivity costs and weak business growth. In Sweden, Gotland and Öckerö performed relatively well, yet they continue to contend with high freight costs, an ageing population, and mounting fiscal pressures.
The report concludes with an operational framework for multi-level governance, including island-proofing and implementation tools, addressing fragmented responsibilities, weak co-ordination, limited capacity, complex funding and insufficient data visibility. Together, these measures provide a roadmap for more coherent, equitable and effective island policy.