Circular economy and macroeconomic performance: Evidence across 28 European countries

Abstract

The circular economy (CE) is regarded as a new concept to promote sustainable development issues by improving economic, environmental and social goals. Essentially, the key idea of the CE is to assist modern economies to shift from linear economic thinking to a circular one in order to ensure that components of products could have a second use in new products and services. The majority of the relevant literature has focused on the relationship between CE principles and firms. However, to achieve CE principles, data and information from the macro level is also required; something which is currently under examined by the literature. Consequently, a significant gap in this field is the explanation of how the CE affects the macro economy and vice versa. To fill this gap, this paper aims to examine the relationship between a macro-level Circularity Rate and various macroeconomic variables across a sample of 28 European countries employing panel data. The findings suggest a robustly positive relationship between real GDP and the circularity rate over the long-run while higher environmental taxes are associated with an increase in the Circularity Rate. Southern European countries exhibit a significantly lower level of Circularity Rates compared to their northern counterparts.