The circular economy and sustainable growth: based on directed technical change

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ABSTRACT This study develops a Directed Technical Change model with circular and production sectors, subject to an environmental boundary. It explores the dynamic relationship between waste recycling and sustainable endogenous growth. The theoretical analysis yields three main results: (1) Both full recycling and balanced technical change are necessary conditions for preventing an environmental disaster; (2) The laissez-faire equilibrium inevitably fails to sustain long-term growth; (3) Reducing collection and transportation costs of waste early, followed by the implementation of R&D tax–subsidy policies, which together enable sustainable growth with a lower environmental burden.