This chapter benchmarks the performance of European island regions across demographic, economic, and productivity indicators from 2001 to 2021. Despite average population growth, outpacing coastal non-metropolitan and other regions, the analysis finds a stagnant economic performance in island regions with GDP, GDP per capita, labour productivity and employment gains underperforming against their benchmark. The analysis also reveals a shift in industry specialisation from industry to more services-oriented activities. Employment remains concentrated in trade, services, and public administration, with emerging gains in professional and scientific activities. While firm density is comparable to other regions, island economies are dominated by self-employed and small firms, underscoring structural fragmentation and limited scale. Overall, the analysis highlights a widening gap between demographic expansion and economic performance.
Policy Pathways Beyond the Shoreline
Abstract
On average, Island regions are observing population growth at a stronger pace than Coastal non-metro regions and other types of regions
From 2001 to 2021, OECD European Island regions observed aggregate population increases. In 2001, the average regional population in Island regions was approximately 276 000 individuals, growing by 25 000 inhabitants to 301 000 individuals in 2021 (Figure 4.1, panel A). Similarly, non-metropolitan regions that were coastal or at least 50% of the population living 50km off the coast (Coastal non-metropolitan regions, from here onward) increased in terms of average regional populations. In 2001, Coastal non-metropolitan regions had an average of 284 000 inhabitants, and much less in terms of levels to 2021 (9 500 increase). Other region types (those not identified as Island regions or Coastal non-metropolitan regions) also grew, but to a lesser extent than Island regions, from approximately 380 000 in 2001 to 400 000 in 2021.
The average regional aggregate growth of Island in population from 2001 to 2021, far outperformed non-Island regions. From 2001 to 2021, the average regional population in Island regions grew by an aggregate 9.3% (Figure 4.1, panel B). This was higher than the growth in other types of regions (5.3%) and more than triple the aggregate growth in close to Coastal regions (3.3%). In terms of annual growth, from 2001 to 2021, Island regions saw a compound annual growth rate of 0.42%, which was close to double (1.7 times) that of other region types (0.25%) and close to three times (2.7 times) higher than Coastal non-metropolitan regions (0.16%).
Note: Population is aggregated by each Island region type and presented here. Aggregate population is presented in regional means, rather than aggregate totals. Data included for Austria, Belgium, Croatia, Czechia, Denmark, Estonia, Finland, France. Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain and Sweden.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
Aggregate economic growth is lagging behind in island regions
OECD European island regions have experienced relative stagnation in Gross Domestic Product (GDP) between 2001 and 2021. In 2001, the population-weighted average GDP of island regions was approximately USD 15 billion (Figure 4.2). By 2021, this figure had increased modestly to USD 16 billion, representing an overall gain of USD 1 billion over the two decades.
In comparison, coastal non-metropolitan regions saw their population-weighted average GDP rise from USD 13 billion in 2001 to USD 15 billion in 2021, an increase of USD 2 billion. Other types of regions experienced far stronger growth, with their population-weighted average GDP increasing from USD 38 billion in 2001 to USD 52 billion in 2021.
Between 2001 and 2021, island regions recorded a compound annual growth rate (CAGR) in population-weighted average GDP of only 0.23%, well below that of other regions. Over the same period, coastal non-metropolitan regions grew at 0.7% per year (e.g. over three times faster), while other types of regions grew at 1.5%, more than six times higher than island regions.
In aggregate terms, island regions’ population-weighted GDP increased by just 5% between 2001 and 2021 (Figure 4.2, panel B). This was significantly lower than the 16% aggregate GDP growth recorded in coastal non-metropolitan regions and far below the 37% growth observed in all other regions.
Note: Gross domestic product is weighted by population, and presented in 2015 constant prices, after adjusting for purchasing price parity (PPP), in millions. Data included for Austria, Belgium, Croatia, Czechia, Denmark, Estonia, Finland, France. Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain and Sweden.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
GDP per capita growth in Island regions declined during the last two decades, from 2001 to 2021.
GDP per capita in island regions remains relatively low compared to both coastal non-metropolitan regions and other region types. In 2021, GDP per capita in island regions was approximately USD 26 000 (Figure 4.2, panel A). This represents a decline from 2001, when GDP per capita in island regions was close to USD 28 000.
In contrast, both coastal non-metropolitan regions and other region types recorded increases over the same period. In coastal non-metropolitan regions, GDP per capita rose from approximately USD 30 000 in 2001 to USD 33 000 in 2021. In all other region types, GDP per capita increased more substantially, from around USD 36 000 in 2001 to USD 44 000 in 2021.
Over the 2001-2021 period, GDP per capita growth in island regions was negative, while it remained positive in both coastal non-metropolitan and other regions. Island regions experienced a compound annual decline of 0.22% in GDP per capita. By contrast, coastal non-metropolitan regions grew by 0.29% per year, and other regions by 1.00%.
In aggregate terms, between 2001 and 2021, island regions recorded a 4% decline in GDP per capita (Figure 4.3, panel B). Although there were periods of partial recovery, these were insufficient to return to 2001 levels. Island regions experienced a steady decline beginning with the Global Financial Crisis (2009), remaining below 2001 levels from 2011 to 2019, and were further affected during the COVID-19 pandemic.
In comparison, coastal non-metropolitan and other regions, while also impacted by these two global crises, still achieved positive aggregate growth. Coastal non-metropolitan regions recorded an 11% increase, and other regions experienced a 23% increase in GDP per capita over the same period.
Note: GDP per capita is calculated first by summing the total GDP and population of all regions within each island type, then dividing the sum of GDP by the sum of population. Data included for Austria, Belgium, Croatia, Czechia, Denmark, Estonia, Finland, France. Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain and Sweden.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
The economic analysis section provides a broad overview of island regions and regions located close to islands. It highlights the relative economic challenges faced by island regions, challenges that are not as evident in regions with some islands or in other EU regions.
In summary, while population levels are increasing in island regions (Figure 4.1), GDP growth has not kept pace (Figure 4.2), leading to a decline in GDP per capita (Figure 4.3).
If GDP growth in island regions had matched the average growth observed in coastal non-metropolitan regions (16.5% aggregate growth, Figure 4.2), the population-weighted average GDP of island regions would have increased by approximately 1.8 billion USD, corresponding to a 0.73% compound annual growth rate (CAGR) instead of 0.23%, and an 11% higher aggregate growth (16% versus 5%) over the 2001-2021 period.
Similarly, in terms of GDP per capita, assuming population levels had remained constant, if island regions had experienced the same 11% GDP per capita growth as coastal non-metropolitan regions (Figure 4.3), GDP per capita would have reached approximately 31 000 USD in 2021, rather than 26 000 USD. This would correspond to a 0.49% annual increase instead of a 0.22% decline, and an aggregate 16% gain over the period.
In other words, due to sluggish GDP growth combined with rapid population increases, island regions experienced a net loss of about 4 000 USD per capita between 2001 and 2021.
Labour productivity has fallen in Island regions
Labour productivity in island regions has declined between 2001 and 2021, while it has increased in other regions. In 2021, gross value added (GVA) per employed worker in island regions was approximately 63 000 USD, representing a decline of about 5 000 USD from 2001, when it stood at around 68 000 USD (Figure 4.4, panel A). This corresponds to an aggregate decrease of 6% over the two decades, or a compound annual decline of 0.32% (Figure 4.4, panel A).
In contrast, coastal non-metropolitan regions and all other types of regions recorded positive growth over the same period. From 2001 to 2021, GVA per worker increased by 5% in coastal non-metropolitan regions and by 14% in all other regions, equivalent to compound annual growth rates of 0.24% and 0.61%, respectively.
Note: Labour productivity is calculated first by summing the total gross value added (GVA) and employment of all regions within each island type, then dividing the sum of GDP by the sum of population. For consistency with following analysis, data on GVA and employment are the sum of the industrial GVA and employment for each country and year. Data included for Austria, Belgium, Croatia, Czechia, Denmark, Estonia, Finland, France. Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain and Sweden.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
The fall in labour productivity of Island regions is associated with an absolute decline in gross value added, and sluggish but positive employment growth
Labour productivity is influenced by changes in gross value added (GVA) and employment. If GVA remains constant, a decline in productivity can only result from an increase in employment. Conversely, if GVA declines, a decrease in productivity may arise from stagnant employment, increasing employment, or a decline in employment that is slower than the decline in GVA.
In the case of island regions, the fall in labour productivity reflects both a decline in absolute GVA and a moderate increase in employment (Figure 4.5). Employment in island regions grew alongside GVA until 2008, the onset of the Global Financial Crisis. Following the crisis, both GVA and employment declined; however, while GVA continued to fall, employment began to rise again after 2013.
Over the entire 2001-2021 period, island regions recorded an aggregate 3.7% decline in GVA and a 3% increase in employment. In comparison, coastal non-metropolitan regions experienced an 8.5% aggregate increase in GVA and a 3% rise in employment. All other regions showed much stronger performance, with 27% aggregate growth in GVA and 12% growth in employment over the same period.
Note: For consistency with following analysis, data on GVA and employment are the sum of the industrial GVA and employment for each country and year. Data included for Austria, Belgium, Croatia, Czechia, Denmark, Estonia, Finland, France. Germany, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Poland, Portugal, Slovak Republic, Slovenia, Spain and Sweden.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
Labour Productivity is highest in the Financial and Insurance sector, replacing industry as the most productive sector in Island region types in 2021
In 2021, the sector with the highest labour productivity across all region types was the Financial and Insurance sector (Figure 4.6)1. In island regions, labour productivity in this sector reached approximately 130 000 USD per worker, an increase of about 18 000 USD compared to 2001 (around 110 000 USD). Although productivity in the Financial and Insurance sector grew in island regions, the rate of growth was lower than that observed in other region types.
In coastal non-metropolitan regions, labour productivity in the Financial and Insurance sector reached around 150 000 USD in 2021, representing an increase of roughly 33 000 USD since 2001 (about 120 000 USD).
The rise of the Financial and Insurance sector as the most productive sector in all three categories of island regions came at the expense of the industry sector2, which held the top position in island regions in 2001 but fell to second place by 2021. In contrast, the industry sector remained the most productive sector in coastal non-metropolitan regions throughout the period.
Labour productivity in 2001 and 2021, by Island type
Note: The unit of observation for each island type are sectors. The 10 sectors and their short titles are the following: Agriculture, forestry and fishing (Agriculture) ; Arts, entertainment and recreation; other service activities; activities of household and extra-territorial organizations and bodies (Arts&Rec) ; Construction (Construction); Financial and insurance activities (Fin & Ins); Industry (Industry); Information and communication (Inf & Com); Manufacturing (Manufact); Professional, scientific and technical activities; administrative and support service activities (Prof&Sci); Public administration, defence, education, human health and social work activities (Public Admin); Wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities (Trade & Serv). The Real Estate activities sector was excluded for ease of interpretation.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
Despite the strong nominal growth of the Financial and Insurance sector (Figure 4.6), the highest increase in compound annual labour productivity growth in island regions between 2001 and 2021 occurred in the Agricultural sector, with a rate of 1.9%. This was followed by the Financial and Insurance sector, which recorded a 0.8% compound annual growth rate (Figure 4.7).
All other sectors in island regions experienced productivity declines over the same period. The steepest decreases were observed in the Professional and Scientific services and Arts and Recreation sectors, both recording -1.9% annual declines.3
In comparison, coastal non-metropolitan regions registered their strongest productivity growth in the Information and Communication sector, with a 2.01% compound annual growth rate between 2001 and 2021. The Financial and Insurance sector also performed better than in island regions, growing by 1.25%, while in all other region types, this sector expanded even further, by 1.7% over the same period.
Island regions, by contrast, experienced stagnation in both the Information and Communication and Manufacturing sectors, unlike coastal non-metropolitan and other regions, where these sectors grew. Lastly, the Trade and Services sector declined in both island regions (-1.0%) and coastal non-metropolitan regions (-0.8%), while it posted modest but positive annual growth in other regions (0.6%).
Compound annual growth rates, by sector and Island type (2001 to 2021)
Note: The unit of observation for each island type are sectors. The 10 sectors and their short titles are the following: Agriculture, forestry and fishing (Agriculture) ; Arts, entertainment and recreation; other service activities; activities of household and extra-territorial organizations and bodies (Arts&Rec) ; Construction (Construction); Financial and insurance activities (Fin & Ins); Industry (Industry); Information and communication (Inf & Com); Manufacturing (Manufact); Professional, scientific and technical activities; administrative and support service activities (Prof&Sci); Public administration, defence, education, human health and social work activities (Public Admin); Wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities (Trade & Serv). The Real Estate activities sector was excluded for ease of interpretation.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
Trade and Services are the largest sector of employment for Island regions while the largest growth was in the Professional and Scientific services sectors4.
In 2021, nearly one-third (30%) of employment in island regions was concentrated in the Trade and Services sector, followed by Public Administration, which accounted for 25% of total employment (Figure 4.8). Similarly, in coastal non-metropolitan regions, the two largest sectors were Trade and Services (25%) and Public Administration (23%). The same pattern was observed in other region types, where Trade and Services represented 24% of employment and Public Administration 23%.
The relative distribution of employment begins to differ more noticeably across region types in the Professional and Scientific Services and Manufacturing sectors. In island regions, the Arts and Recreation sector ranks as the third-largest employer, followed by Professional and Scientific Services in fourth place, and Agriculture in fifth, each accounting for roughly 9% of total employment.
In coastal non-metropolitan regions, the Manufacturing sector is the third-largest employer (15% of total employment), followed by Professional and Scientific Services (10%) and Agriculture (8%). In other region types, the leading sectors after Trade and Services and Public Administration are Manufacturing (15%), Professional and Scientific Services (14%), and Construction (7%), which together make up a larger share of total employment.
Share of employment in sectors (2021)
Note: The unit of observation for each island type are sectors. The 10 sectors and their short titles are the following: Agriculture, forestry and fishing (Agriculture) ; Arts, entertainment and recreation; other service activities; activities of household and extra-territorial organizations and bodies (Arts&Rec) ; Construction (Construction); Financial and insurance activities (Fin & Ins); Industry (Industry); Information and communication (Inf & Com); Manufacturing (Manufact); Professional, scientific and technical activities; administrative and support service activities (Prof&Sci); Public administration, defence, education, human health and social work activities (Public Admin); Wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities (Trade & Serv). The Real Estate activities sector was excluded for ease of interpretation.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
Beyond differences in employment shares across sectors in 2021, compound annual employment growth rates also varied significantly by sector and region type (Figure 4.9).
In island regions, the largest employment increase in terms of compound annual growth was observed in the Real Estate sector (2.76%). However, this sector represents the smallest share of total employment (around 0.5%). The Professional and Scientific Services sector also recorded strong growth (2.03%) and accounted for a substantial share of employment (9%). Additional employment growth occurred in the Arts and Recreation sector (1.0%) and the Trade and Services sector (0.7%). In contrast, employment declined in the Agricultural (-1.5%) and Manufacturing (-1.3%) sectors.
In coastal non-metropolitan regions, the strongest employment growth was recorded in the Information and Communication sector (2.3%), followed by Professional and Scientific Services (2.0%), Real Estate (1.3%), and Industry (0.6%). The Manufacturing sector experienced a decline (-1.0%), similar in magnitude to that observed in island regions (-1.1%).
For other region types, employment grew notably in the Professional and Scientific Services (2.2%), Information and Communication (1.8%), and Real Estate (1.6%) sectors. Conversely, the Agricultural (-1.9%) and Manufacturing (-0.7%) sectors experienced employment declines.
Compound annual growth rates (2001-2021)
Note: The unit of observation for each island type are sectors. The 10 sectors and their short titles are the following: Agriculture, forestry and fishing (Agriculture) ; Arts, entertainment and recreation; other service activities; activities of household and extra-territorial organizations and bodies (Arts&Rec) ; Construction (Construction); Financial and insurance activities (Fin & Ins); Industry (Industry); Information and communication (Inf & Com); Manufacturing (Manufact); Professional, scientific and technical activities; administrative and support service activities (Prof&Sci); Public administration, defence, education, human health and social work activities (Public Admin); Wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities (Trade & Serv). The Real Estate activities sector was excluded for ease of interpretation.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
The largest share of gross value-added in the private sector is in the trade and services sector, however, gross value-added in this sector is falling in most sectors in Island regions, while gross value-added in the Agricultural sector is increasing.
In 2021, and similar to trends observed in employment, the sectors contributing most to gross value added (GVA) in island regions were Public Administration5 and Trade and Services (Figure 4.10). Excluding the Real Estate sector6, which typically dominates due to its structural accounting effect; the Trade and Services sector and the Professional and Scientific Services sector, were the next largest contributors to GVA in island regions, representing 24% and 7%, respectively, of total GVA.
In coastal non-metropolitan regions and other region types, the Trade and Services sector was the largest contributor to GVA, surpassing Public Administration. However, the Manufacturing and Public Administration sectors remained important secondary contributors. In coastal non-metropolitan regions, Public Administration accounted for 19% of GVA, while Manufacturing contributed 18%. In other region types, both Manufacturing and Public Administration accounted for 17% each of total GVA.
Share of Gross Value-added in sectors (2021)
Note: The unit of observation for each island type are sectors. The 10 sectors and their short titles are the following: Agriculture, forestry and fishing (Agriculture) ; Arts, entertainment and recreation; other service activities; activities of household and extra-territorial organizations and bodies (Arts&Rec) ; Construction (Construction); Financial and insurance activities (Fin & Ins); Industry (Industry); Information and communication (Inf & Com); Manufacturing (Manufact); Professional, scientific and technical activities; administrative and support service activities (Prof&Sci); Public administration, defence, education, human health and social work activities (Public Admin); Wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities (Trade & Serv). The Real Estate activities sector was excluded for ease of interpretation.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
Despite accounting for a large share of total gross value added (GVA), the Trade and Services sector experienced a decline in island regions between 2001 and 2021, with a compound annual growth rate (CAGR) of -0.3% (Figure 4.11). Excluding the Real Estate sector, only a few sectors in island regions recorded positive GVA growth over this period: Agriculture (0.3%), Professional and Scientific Services (0.1%), and Financial and Insurance Services (0.1%).
All other sectors experienced contractions in GVA, with the steepest declines observed in Construction (-2.2%), Manufacturing (-1.3%), Arts and Recreation (-0.9%), and Industry (-0.8%).
In coastal non-metropolitan regions, GVA also declined in the Construction (-0.6%), Arts and Recreation (-0.5%), Industry (-0.3%), and Agricultural (-0.1%) sectors. However, all other sectors recorded growth between 2001 and 2021.
In other region types, GVA decreased only in Industry (-0.1%), while all other sectors grew. The strongest growth in both coastal non-metropolitan regions and other regions occurred in private services, particularly the Information and Communication and Professional and Scientific Services sectors. The Information and Communication sector recorded annual GVA growth of 2.3% in coastal non-metropolitan regions and 4.0% in other regions, while Professional and Scientific Services grew by 0.9% and 1.8%, respectively.
Compound annual growth rates (2001-2021)
Note: The unit of observation for each island type are sectors. The 10 sectors and their short titles are the following: Agriculture, forestry and fishing (Agriculture) ; Arts, entertainment and recreation; other service activities; activities of household and extra-territorial organizations and bodies (Arts&Rec) ; Construction (Construction); Financial and insurance activities (Fin & Ins); Industry (Industry); Information and communication (Inf & Com); Manufacturing (Manufact); Professional, scientific and technical activities; administrative and support service activities (Prof&Sci); Public administration, defence, education, human health and social work activities (Public Admin); Wholesale and retail trade; repair of motor vehicles and motorcycles; transportation and storage; accommodation and food service activities (Trade & Serv). The Real Estate activities sector was excluded for ease of interpretation.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
Smaller firms (1-9 employees) employ a larger share of workers in Island regions than in other regions, but 10 + employee firms employ less.
Most firms in island regions, as in other types of regions, are self-employed enterprises. In island regions, these firms represent 60% of all businesses and account for 36% of total employment (Figure 4.12). Self-employment is also prevalent in coastal non-metropolitan regions and other region types. In coastal non-metropolitan regions, self-employed firms make up 63% of all firms but employ only 17% of workers. In other region types, self-employed firms also represent 63% of all firms, but account for just 10% of employment.
Small firms, those with 1-9 employees, play an important role in island economies. They represent 36% of all firms and employ 36% of the workforce in island regions. Island regions have the largest share of small firms, and these firms contribute more to employment than in coastal non-metropolitan or other region types. In coastal non-metropolitan regions, 32% of firms have 1-9 employees, employing 28% of workers. In other region types, firms of this size represent 31% of all firms and about 19% of employment.
Larger firms with more than 10 employees, constitute only a small share of total firms in island regions but account for a disproportionately high share of employment. These firms make up just 3.8% of all firms but employ 45% of workers. In comparison, in coastal non-metropolitan and other region types, firms with more than 10 employees represent a slightly higher share of total firms (4.5% and 5.5%, respectively) and employ a significantly larger proportion of workers (54% and 71%, respectively).
Note: The shares presented are the sum of the total number of firms within each Island region type category. The share of each size of firm sums to 1 for each Island region type.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
Firm density in Island regions is similar to Coastal non-metropolitan regions and all other regions
The intensity of business formation is often used as an indicator of regional competitiveness, despite its well-known limitations. In terms of business density, which is measured as the number of firms per 100 inhabitants, island regions have approximately 7 firms per 100 inhabitants (Figure 4.13). This level is comparable to that of coastal non-metropolitan regions, which also have around 7 firms per 100 inhabitants, and slightly higher than the average observed in other region types, where the density is approximately 6.6 firms per 100 inhabitants.
Across all region types, self-employment firms represent the largest share of business density, accounting for about 4 firms per 100 inhabitants in island regions, coastal non-metropolitan regions, and other regions alike.
Number of firms per inhabitant, by Island type and size
Note: Firm density is calculated as the number of firms over the total population for each Island type and size category.
Source: OECD Regional Indicators, based on classification of regions in Table 3.2
The analysis presented in this chapter highlights a growing disconnect between demographic vitality and economic performance in European island regions. Over the past two decades, island populations have expanded faster than in comparable regions, but this growth has not translated into higher levels of prosperity. Instead, economic output, labour productivity, and GDP per capita have either stagnated or declined, revealing persistent structural weaknesses that constrain the capacity of island regions to turn population growth into economic resilience and well-being.
At the heart of this challenge lies low and declining productivity. Despite an expanding labour force, the total value generated by island economies has fallen, reflecting limited diversification, weak innovation diffusion, and an overreliance on low-productivity sectors such as trade, services, and public administration.
While the low and declining productivity in island economies presents a significant challenge, it also offers an opportunity to pivot toward more innovation-driven and sustainable economic models. New productive pillars, such as the blue economy, green innovation, and digitalisation, provide pathways to overcome these challenges. For example, blue economy sectors like offshore renewables, sustainable fisheries, and marine biotechnology can unlock growth, while digital innovation can bridge connectivity gaps, enhancing island productivity and enabling access to global markets.
In contrast, traditional sectors that tend to drive productivity growth elsewhere, such as manufacturing, information and communication, and advanced professional services, remain underdeveloped or stagnant in most islands. While the Financial and Insurance sector shows the highest productivity levels and agriculture demonstrates relative productivity gains, these improvements have not been sufficient to offset broader structural weaknesses.
The firm landscape reinforces this pattern. Island economies are dominated by self-employed individuals and microenterprises, which provide essential local services but face difficulties scaling up or integrating into wider markets. Larger firms, which tend to drive innovation, exports, and higher-value job creation, are comparatively scarce. Firm density in islands is similar to other regions, suggesting that the issue is not the number of businesses but their size, productivity, and growth potential.
Beyond small market size, many island entrepreneurs face limited access to finance, high operational and taxation burdens, pronounced seasonality in demand and shortages of skilled labour, which further constrain the ability of self-employed and microenterprises to scale up and contribute to productivity growth.
In this context, policy efforts need to shift from expanding the quantity of economic activity to raising its quality and value-added. A more productive and diversified economic base will require investing in skills, innovation, and connectivity, while fostering the conditions for small firms to grow and integrate into broader value chains. Strengthening links between research institutions, businesses, and public actors can help diffuse innovation across sectors such as the blue economy, agri-food, renewable energy, and digital services. These are areas where islands have comparative advantages but often lack scale.
Improving connectivity, both digital and physical, is also central. Reliable transport and broadband infrastructure can reduce isolation, facilitate access to markets, and support the emergence of remote service industries. Targeted investments in green energy, logistics, and smart infrastructure can improve competitiveness while addressing sustainability constraints linked to water, energy, and land use.
Finally, governance will play a crucial role. Effective island development strategies will depend on integrated, multi-level approaches that combine local initiative with national and European co-ordination. Regional authorities need flexibility to tailor interventions to local strengths, whether in tourism diversification, sustainable agriculture, or marine innovation, while aligning with broader goals of productivity growth and environmental sustainability.
In summary, the evidence calls for a strategic reorientation of island policy from compensating for peripherality to building competitive advantage. By focusing on productivity, diversification, firm scaling, and connectivity, island regions can transform demographic growth into sustainable economic progress. The goal is not merely to have more firms or jobs, but to foster better-quality employment, higher-value sectors, and more resilient economies capable of withstanding global shocks while offering greater prosperity for their communities.
← 1. The Real Estate sector is excluded for easy of interpretation.
← 2. This sector includes the mining and quarrying sector; electricity, gas, steam and air conditioning supply sector; and the water supply, sewerage, waste management and remediation activities sector.
← 3. The gross value-added of the Real Estate sector contains the value of temporary capital investments that are temporally ambiguous, lumpy and susceptible to market fluctuations. Furthermore, prices are subject to speculation rather than real prices, as the other sectors. For this reason, the interpretation of this sector is not taken into further consideration.
← 4. Excluding the statistics from the Real Estate sector.
← 5. When it comes to understanding gross value added in Public Administration, this is often non-comparable with other private sectors. This is because, for most OECD and EU countries, Public Administration is not a for-profit sector, and gross value added is often proxied by expenditure. Given the nature of rural and Island regions that are often more distant, less populated, and often with a natural geography which impacts public service delivery, it is not uncommon for public services to cost more. For this reason, the interpretation of this sector’s gross value-added is not aligned with the interpretation of gross value added in other (mostly) private sectors. It can also be impacted by non-competitive nature of state-owned enterprises.
← 6. The gross value-added of the Real Estate sector contains the value of temporary capital investments that are temporally ambiguous, lumpy and susceptible to market fluctuations. Furthermore, prices are subject to speculation rather than real prices, as the other sectors. For this reason, the interpretation of this sector is not taken into further consideration.