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Manufacturing in Small Peripheral Island States: Where is the Level Playing Field?

DOI https://doi.org/10.21552/estal/2017/2/12

Caroline Buts, Phedon Nicolaides


While many islands can be attractive tourist destinations, other parts of the economy often face serious challenges that are the direct result of natural and permanent handicaps. Small islands encounter difficulties in attracting and maintaining manufacturing activities. Additional transport costs as well as the absence of economies of scale and low connectivity can result in investment decisions on the mainland, rather than the island. Multiple policies exist to help islands balance out the disadvantage of being remote, small or sparsely populated. Nevertheless, the State aid rules treat small and remote islands differently, depending on whether they are a region or a Member State. After briefly reviewing the main difficulties encountered by islands, we study the case of Malta. Next, the relevant State aid rules are evaluated, revealing inconsistencies and the need for revisions with important consequences for Malta and Cyprus.
Keywords: Regional State Aid; Peripheral Islands; Island States; Transport Costs; Industrial Base.

Caroline Buts is assistant professor at the Department of Applied Economics of the Vrije Universiteit Brussel. Phedon Nicolaides is Professor at the College of Europe and at University of Maastricht. Input from Michaël Dooms and Alain Verbeke is gratefully acknowledged. Parts of this opinion are based on results obtained in: C Buts, M Dooms, P Nicolaides and A Verbeke, ‘Mitigating Pressures on the Competitiveness of Manufacturing Activities in Small Peripheral Island States’ (2016) Study Commissioned by the Malta Chamber of Commerce, Enterprise and Industry. DOI: 10.21552/estal/2017/2/12

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