Small island developing States (SIDS) are a diverse group of island countries that share some common features and vulnerabilities such as insularity, geographic remoteness, and smallness of economies, populations and area. Together, these factors emphasize the importance of well-functioning, reliable, sustainable and resilient transportation systems, in particular maritime and air transport for SIDS development and survival. In this context, publics policies matter more?
I think that transport costs matter for all island economies, but to different extent. It depends on specialization. If economy is a tax haven (see for example https://en.wikipedia.org/wiki/Taxation_in_the_British_Virgin_Islands ) and rich are saving money in its banks, transport cost will not matter. If it is a unique touristic resort - like Galapagos - tourists will come even if its is expensive to travel.
But probably you are thinking more about Azores for Portugal or Canaries islands for Spain. If a high fraction of GDP is just normal production, agricultural or natural resources, then transport cost matter. And public policies (like transport subsidy) may matter a lot.
Dear Sara Maria, I do not know whether you were satisfied with my brief reply. It seems that more people have an interest to this topic, although they do not write here.
I may recommend to have a look at my paper with G. Grohall about the role of transport costs in trade, both empirical and theoretical:
https://www.researchgate.net/publication/228419891_A_Land_Far_Away
Article A Land Far Away
You could probably find some inspiration in the literature that covers transport, equity, accessibility in peripheral countries. In the 90', a lot of research was published around these topics in Europe, mainly because some countries such as Greece, Ireland or smaller European islands were directly concerned.
See for instance several papers by M. Wegener, R. Vickerman or others.
It depends a lot on the island state. In the Pacific Islands transportation costs are very high. This is true particular for internal costs between islands for flights as well as ship transpartation. Also international transport is costly. This not only affects mobility of people, but also freight costs. Just an example: A few years ago I brought some sea cargo from Germany to Fiji. Some 700 km from South Germany to Hamburg by lorry, from there by ship to New Zealand and finally to Suva cost less than from Suva Harbour to the warehouse of the caro company, biosecurity inspection and then to my office at the University, all about 20 km.
Singapore, an island state and not so long into the past a developing country does not face isolation and remoteness. It is close to the Asian market, at major shipping lines and was able to develop into a hub both for air as well as sea transportation. A good example what difference location can make, but location is not the only factor.