Circular Economy, Institutional Quality, and Sovereign Credit Risk Nexus: Evidence From European Countries

Does institutional quality matter in the financial Development-Economic complexity Nexus? Empirical insights from Africa

We study the link of sovereign and bank credit risks in the euro area by extracting default information from the most liquid 5Y CDS spreads over the period 2010-2014. Using German CDS spread and iTraxx financials index as proxies for systemic default risk of sovereigns and banks, we estimate the systemic credit risk and idiosyncratic credit risk of each sovereign and bank. We find that after controlling for both global macroeconomic shocks and country-specific risks, idiosyncratic sovereign credit risk change can explain bank credit risk change. We also find that co-integration between sovereign and bank only exists in Belgium and Greece. Results of error correction model reveal that credit risk of Belgian bank Granger-causes sovereign credit risk due to the massive government bail-out while in Greece this is not found since the crisis is rooted in the high fiscal deficit of Greek government.

This article analyses the impact of institutional quality and sustainability on FDI. To achieve the objective, the study utilises data from 189 countries for 19 years, from 1996 to 2017. For estimation, the study uses several approaches such as pooled panel least squares with fixed and random effect models, generalised method of moments and panel quantile regression. The study finds that FDI and institutional quality steers the sustainability of the participating countries, primarily by creating and maintaining a conducive environment for investment and trade. We also confirmed that institutional quality variables can predict the FDI inflow across the countries. This is the first study in our knowledge that adopts different estimations and thereby ensures the robustness of the research findings. Moreover, our study is unique by including a new variable, i.e., the environmental performance index, to understand the sustainability aspects of FDI and the institutional quality. JEL Codes: Q56, C33, G28, E02, E22, F21

This study explores the nuanced relationship between biodiversity and sovereign credit ratings, underscoring the link between environmental sustainability and economic resilience. As credit rating methodologies increasingly incorporate Environmental, Social, and Governance (ESG) dimensions alongside traditional macroeconomic indicators, biodiversity has emerged as a vital factor influencing sovereign creditworthiness. Drawing on a panel dataset of 62 countries—representing 91% of the global GDP and 81% of the world’s greenhouse gas emissions—from 2001 to 2021, the research utilizes advanced econometric techniques, including the panel Generalized Method of Moments (GMM) and panel quantile regression. The GMM analysis indicates that higher biodiversity levels are generally associated with a decline in credit ratings. However, the quantile regression provides a more differentiated view, revealing that biodiversity’s impact varies by a country’s existing credit standing. Specifically, nations with lower credit ratings tend to benefit from richer biodiversity, while countries with higher credit ratings show a modest negative association—reflecting structural and institutional differences. Robustness checks confirm these results, highlighting the relevance of biodiversity indicators such as the Red List Index in credit evaluations. The findings support the integration of biodiversity into sovereign risk assessments to enhance the alignment of financial systems with long-term ecological and economic sustainability goals.

ObjectiveThis article aim to investigate the causal relationship between sovereign credit risk and political risk in Argentina, Brazil, and Venezuela.MethodsGranger causality, Toda Yamamoto causality, and wavelet coherence tests are used to answer the following questions: (i) Is there are causal linkage between sovereign credit risk and political risk? (ii) If yes, in which direction(s)? It also provides a recent literature on the methods of quantification of political risk and historic economic instabilities in the selected countries.ResultsThe findings from wavelet coherence reveal that (i) between 1997 and 2005, sovereign credit risk significantly causes political risk in Argentina at medium frequency but between 2008 and 2015, at high frequency, the direction of causality is opposite relative to the previous period; (ii) the correlation between political risk and sovereign credit risk is not high throughout the period of 1993‐2015, although there is a positive correlation between sovereign credit risk and political risk 1998 and 2000 at only high frequency in Brazil; (iii) between 1997 and 2011, political risk significantly causes sovereign credit risk in Venezuela. At high frequency, between 2006 and 2007, there is also positive correlation between sovereign credit risk and political risk.ConclusionThere is evidence that there is a feedback causal relationship between political risk and sovereign credit risk at different frequencies.

This study examines the interplay among institutional quality, efficiency, and financial stability in the Malaysian Islamic banking sector with a special emphasis on the interaction between efficiency and institutional quality. The sample comprises 16 Islamic banks from 2012 to 2020. The indicators for financial stability are Z-score based on return on assets (ZROA) and non-performing loans (NPLs). The system generalized method of moments (GMM) is employed to overcome the potential endogeneity issue in our regression. The findings show that institutional quality (i.e. government effectiveness, regulatory quality, and rule of law) influences Islamic banking performance. Based on the interaction model, government effectiveness and regulatory quality have a negative and statistically significant impact on ZROA. Conversely, government effectiveness and regulatory quality positively and statistically influence financial stability, as measured by NPLs. As for the rule of law, financial stability (i.e., ZROA) can be achieved in a strict environment when Islamic banks are inefficient.

A stable banking sector is significant in ensuring economic growth as well as sound, efficient and stable financial system. However, the banking sector in Kenya has been considered fragile and this is evident from the increasing trend of non-performing loans, fluctuating deposit trend of some commercial banks and fluctuations of foreign liabilities in commercial banks in Kenya, which is associated with financial stability. Furthermore the collapsing of some commercial banks and some being put under receivership is of great concern to the financial stability of the commercial banks in Kenya. The general objective of the study was to establish the effect of CAMEL variables on financial stability of commercial banks in Kenya. The specific objectives of the study were to determine the effect of operational efficiency, capital adequacy, bank liquidity, profitability and asset quality on financial stability of commercial banks in Kenya. The study was carried out in 17 fragile commercial banks in Kenya between 2011 and 2018. Generalized Method of Moments (GMM) model guided by dynamic panel regression results revealed that operating efficiency had a statistically significant positive effect on financial stability (β= 0.3104109, p=0.037) of commercial banks in Kenya. The study also established that capital adequacy had a statistically significant negative effect on financial stability (β= -0.1560403, p=0.050) of commercial banks in Kenya. The study further revealed that bank liquidity had a statistically insignificant negative effect on financial stability (β= -0.0073553, p=0.881) of commercial bank in Kenya. In addition, profitability had a statistically significant negative effect on financial stability (β= -0.1064231, p= 0.036). Finally, the study revealed that asset quality had a statistically significant positive effect on financial stability (β= 0.0987029, p= 0.032). Based on these findings, the study recommends for mergers and acquisition among the fragile commercial banks as per the fragility index, adoption of internal economics of scale, limits on insider loans to be established and credit to borrowers should not exceed 15% of the capital. This would ensure a sound and vibrant economy towards achieving the Vision 2030 that advocates for well-functioning, efficient and stable financial system. Keywords : Camel Variables, Firm characteristics, Financial Stability, Dynamic Panel Regression. DOI: 10.7176/RJFA/11-18-10 Publication date: September 30 th 2020

This research used the dynamic panel model and QR (Quantile Regression) to examine the effect of globalization (GB), Institutional Quality (IQ), Economic Growth (EG), Electricity Consumption (EC), and Renewable Energy (RE) consumption on Carbon dioxide (CO2) emission from 1991 to 2018 in thirty-six (OCED) countries. Panel unit root tests have been employed to examine the stationarity of the study variables; the results, which included the Harris and Tzavalis (Journal of econometrics, 1999, 91 (2), 201–226) and Levin et al. (Journal of Econometrics, 2002, 108 (1), 1–24) tests, indicate that all of the variables used are a combination of I (0) and I(I). Cointegration in the study variables has been examined using the cointegration tests devised by Westerlund, Kao, and Pedroni; the results suggest that cointegration exists in the research variables. Findings of the one-step difference GMM, One-step system GMM and two-step system GMM reveal that RE consumption, GB, and IQ negatively affect the CO2 emission in (selected OECD) countries that help to reduce CO2 excretion. In contrast, EC consumption and EG become responsible for the climatic and environmental loss. Further, this study checked the robustness by using SQR (Simultaneous quantile regression) and PQR (Panel Quantile Regression). The evaluated study findings of QR (Quantile Regression) reveal that RE consumption, GB, and IQ help to reduce the CO2 emission while EG and EC consumption becomes responsible for the climatic and environmental loss. Further recommendations are suggested based on the findings.

PurposeThis study focuses on establishing relations with some important but underestimated elements of knowledge dynamics and firm orientations to characterize organizational circular economy activities through eco-innovation (EIN). The advent of the circular economy (CE) in this post-pandemic era has brought unpredictable sustainable challenges for the manufacturing industries. This research paper aims to bring more clarity to the extant literature on the relationship between environmental innovation (EI) and CE.Design/methodology/approachIn this study, a systematic literature review methodology was used to research the determinants of EI in the knowledge environment that drives the implementation of a CE.FindingsThis paper proposes a framework that articulates organizational learning and orientation dynamics and offers a new set of internal knowledge resources for a corporate CE. It is found that change toward CE requires connection with EI. However, successful CE growth largely depends on leveraging knowledge resources and orientation dynamics (stakeholder orientation, sustainability orientation, organization learning orientation and entrepreneurial orientation). CE techniques are still in their early phases of adoption and their implementation is still in its development. Circular knowledge economy (CKE) has the potential to be a useful alternative to achieving thriving CE to achieve sustainability in local and global businesses operations.Practical implicationsThis study helps companies to understand the organizational learning and different orientation dynamics for achieving CE principles. The research findings imply that EI is critical in establishing a sustainable transition toward CE through organizational learning and orientation dynamics and has garnered significant attention from academics, public policymakers and practitioners. The proposed framework can guide managers to develop sustainable policies related to the CE. This research recognizes that firm-level CKE is important in shaping how knowledge resources relate to CE within transition management literature.Originality/valueThis paper abridges the knowledge gap in identifying key drivers and presents the current eminence, challenges and prognostications of sustainable EI parameters in the changing climate of CE. This study builds a framework that combines insights from different viewpoints and disciplines and extends one’s understanding of the relationship between EI and CE. From a theoretical perspective, this study explains the knowledge management complexity links between EI and CE. It builds a theoretical bridge between EI and CE to illustrate how firms transition toward CE following the recommendations. Thus, researchers should continue to support their research with appropriate theories that have the potential to explain EI and CE relationship phenomena, with a particular emphasis on some promising but underutilized theories such as organizational learning, dynamic capabilities and stakeholder theories.

As global industrial waste demands rise alongside increasing water scarcity, it becomes imperative to adopt circular economy principles within industrial water management. Traditional linear models of resource use have become unsustainable, demanding systemic transitions toward circular, closed-loop approaches. This paper explores the intersection of circular economy education and industrial water uses by examining how circular economy education and practices can transform industrial water use and improve sustainability outcome. Through case studies and best practices, this research illustrates successful implementations of circular water economy principles, demonstrates the implementation of closed-loop water systems, cascading reuse and zero liquid discharge technologies can reduce freshwater intake in industrial applications and emphasises the role of public-private partnerships in promoting water reuse projects. The paper also addresses the challenges and barriers to implementation, focusing on regulatory issues, resource limitations, and gaps in awareness. It concludes by proposing future directions for integrating circular economy principles into industrial water management and offers policy recommendations to foster circular water economy education. Hence, it contributes qualitative analysis to the growing body of knowledge on sustainable water management practices and provides valuable insights for policymakers and industry professionals seeking to advance circular economy approaches in industrial water use.

The fundamental objective of this research is to learn how trade liberalization, male employment, urbanization, and foreign direct investment (FDI) affect women’s participation in the labor force. To continue, this study aims to determine the effects of trade and other factors on women’s employment in three distinct sectors (i.e., agriculture, industry, and service). From 1991 to 2021, we analyzed data from eight SAARC countries. The study’s theoretical foundation was the Cobb–Douglas production function. To better understand the connections between trade liberalization and the SAARC labor market, this paper used panel quantile regression (QR) and generalized method of moments (GMM) to empirically explore the key determinants of female employment in total and three sub-sectors. The QR method was used in the study because it looks at how variables affect each other beyond the data mean. Additionally, our data set does not follow a normal distribution, and the connection between the explained and explanatory factors is non-linear. Trade openness has a beneficial effect on total female employment throughout system GMM and all quartiles. Total female employment also benefits from an increase in GDP and FDI. However, women’s access to the workforce is hampered by urbanization. Many strategies for increasing women’s participation in the workforce across three sectors are addressed in this article. The major finding of this study is the rate of change in female employment across three industries. Women’s participation in the service and manufacturing sectors increases, whereas their participation in agriculture decreases, as a result of increased trade openness. Although these studies can assist policymakers in choosing the best feasible trade adjustments, they will also add to diverse academic and policy discussions on trade liberalization and its gender consequences. Since trade has become more accessible, more and more women are entering the workforce. Therefore, workers should acquire industrial and service-sector-related competencies.

PurposeThis paper aims to investigate the long-term relationships of long-term European Monetary Union (EMU) government bond yields. From an asset managers’ or risk managers’ perspective during the euro crisis, the relevance of sovereign credit and redenomination risk became a major issue. Furthermore, it has to be differentiated between core and non-core EMU member countries.Design/methodology/approachMethods of applied time series analysis are used to investigate EMU government bond yields and EMU government bond yield spreads for Spain, Italy, The Netherlands, Austria and Germany. Both standard unit root testing procedures and breakpoint unit root tests are used to examine cointegrating relationships and structural changes in these relationships.FindingsThe empirical results deliver clear evidence for structural shifts in the long-term relationship between German and the two non-core EMU countries (Italy and Spain). The timing of the breaks coincides with the timing of the euro crisis. On the contrary, the results for Austria and The Netherlands are different from the findings for the two non-core countries.Research limitations/implicationsOne major limitation of the study is the limited availability of data regarding to the reaction of asset managers or risk managers to the euro crisis. Especially in the context of the discussion with regard to the relevant risk-free rate for investors, this strand of research is relatively new.Practical implicationsA deeper understanding of changes in the long-term relationship between government bond yields and the re-emergence of redenomination risk is important for asset managers and risk managers in the financial services industry. This is especially true for German life insurers.Originality/valueThe study provides various empirical contributions to the literature on the euro crisis and sovereign credit risk. First, previous results with regard to the structural changes in the long-term relationship between German and Spanish, German and Italian, German and Austrian as well as Germany and Dutch government bond yields are confirmed using unit root breakpoint tests. Second, investigating the autoregressive coefficient and the timing of the breaks delivers evidence that non-core countries have been more exposed to the fear of redenomination risk. Third, we raise the question which risk free interest rate is relevant for the affected countries.

There is some empirical evidence showing that remittances, on average, were about 0.5 percent of GDP in countries with a corruption index higher than the median level, compared to 1.9 percent in countries with a level of corruption lower than the median. It is also arguable, that an improvement in economic institutions would facilitate economic freedom and in turn, reduce the costs of transactions associated with remittances in recipient countries. The quality of institutions in developing countries therefore, could be an important determinant of remittances, which are now considered an essential source of external finance in these countries. Thus, this paper explores the role of institutions in driving the flow of remittances to developing countries. The study uses a sample of 90 countries, and data from the World development Indicators (WDI) and Economic Freedom of the World (EFW) indicators databases. The paper estimates both static and dynamic representations of a reduced form model for the determinants of remittances. The static panel models are estimated using the fixed effects estimator, whereas the dynamic models, represented by autoregressive-distributed lag models, are estimated using a generalized method of moments (GMM) estimator. The results show that an improvement in the quality of institutions in charge of the conduct of monetary policy has a positive impact on remittances, and that this impact increases with the quality of such institutions. The estimates also show that an improvement in the operations of institutions of government leads to an increase in the inflow of remittances, which suggests that a decrease in direct government control or participation in the private sector has positive impact on remittances. Sound monetary policy and an effective government are critical to economic freedom, and these results seem to suggest that migrants tend to send remittances in order take advantage of macroeconomic environments that are favorable to better economic performance. Furthermore, the findings provide evidence, albeit a weak one, which suggests that an improvement in the legal system and property rights may be associated with an increase in remittances, but that the effect is lower for countries with an index value greater than the median level. Ergo, to the extent that remittances have become an important source of external finance, policies promoting sound and accountable local institutions should be a priority for policy makers in developing countries.

Aims: To analyze welfare and sustainability concepts framed by United Nations 2030 Agenda highlighting its commitment towards poverty and hunger; to discuss the concept of circular economy exploring the dimensions of sustainability to which it is associated; to analyze the relationship between the circular economy and the social economy, and to distinguish practices based on the assumptions of the circular economy with an inclusive impact at the level of confronting situations of vulnerability/poverty in Portugal. Method: This is a theoretical reflection based on a review of current literature, documentary analysis and searching on websites, on the opportunities of the social economy embedded in solidarity sector to foster welfare (social) sustainability by pursuing circular economy principles. Findings: The issues of poverty and hunger are central to understand the welfare concept and occupy a pole position in the agenda of human sustainability. The circular economy approach has been distinguished mainly as an alternative philosophy of growth (focusing on business) and (environmental) sustainability. Social economy anchored in solidarity organizations reveals the (neglected) social dimension of circular economy due to circular economy principles that they adopt connected to their mission. Conclusions: The opportunities of circular economy to address welfare sustainability, especially for responding to multiple social needs (e.g., basic needs) coming from the circular social economy stakeholders must be reinforced in discourses and political agendas. Also, that opens space to reconfigure the concept of circular economy widening its scope and focus on a complete approach committed to sustainability, being this a direction, that research can deepen.

Achieving net-zero emissions by 2050 will require tackling both energy-related and non-energy-related GHG emissions, which can be achieved through the transition to a circular economy (CE). The focus of climate change crisis reversal has been on the energy-related continuum over the years through promoting renewable energy uptake and efficiency in energy use. Clean energy transition and efficiency gains in energy use alone will not be sufficient to achieve net-zero emissions in 2050 without paying attention to non-energy-related CO2 emissions. This study systematically reviews the CE literature across different themes, sectors, approaches, and tools to identify accelerators in transitioning to a CE. The study aims to understand and explore how technology, finance, ecosystem, and behavioral studies in the CE paradigm can be integrated as a decision-making tool for CE transition. The material analysis was carried out by identifying the main characteristics of the literature on CE implementation in the agriculture, industry, energy, water, and tourism sectors. Results of the literature survey are synthesized to engender clarity in the literature and identify research gaps to inform future research. Findings show that many studies focused on technology as an accelerator for CE transition, and more studies are needed regarding the CE ecosystem, financing, and behavioral aspects. Also, results show that CE principles are applied at the micro-, meso-, and macro- (national, regional, and global) levels across sectors with the dominance of the industrial sector. The agriculture, water, and energy sectors are at the initial stages of implementation. Additionally, the use of carbon capture and utilization or storage, conceptualized as a circular carbon economy, needs attention in tackling CE implementation in the energy sector, especially in hydrocarbon-endowed economies. The major implication of these findings is that for CE to contribute to accelerated net-zero emission by 2050, coordinated policies should be promoted to influence the amount of financing available to innovative circular businesses and technologies within an ecosystem that engenders behavioral change towards circularity.