Industry 4.0 as an enabler of circular economy practices: Evidence from European SMEs

Abstract

While firms' investment in Industry 4.0 and adoption of circular economy practices are seen as indispensable to a sustainable economy, synergies from the interaction of these two received less systematic empirical treatment. These synergies are particularly important in Europe, given that both the digital and the green transitions are Europe's strategic political priorities, and the “twin” transitions are expected to reinforce each other. By investigating the link between Industry 4.0 technologies and circular economy practices for European SMEs, which have an important place in the European economy and are responsible for a significant amount of waste, this study aims to uncover the potential of digital transition in supporting green transition.Using the ReSOLVE framework as the conceptual background, this paper examines the effect of Industry 4.0 technologies on SMEs' circular economy applications among EU countries using firm-level data from SMEs, Start-ups, Scale-ups, and Entrepreneurship (Flash Eurobarometer 486) Survey in 2020. The results of econometric analyses provide evidence of a statistically significant positive effect of Industry 4.0 technologies on circular economy practices. These findings imply that a key policy priority should be to plan to spread Industry 4.0 components to improve and enhance SMEs' circular economy practices. Overall, the results indicate that Industry 4.0 technologies serve not only Europe's digital and industrial strategies but also its environmental strategies.