The impact of public procurement on the adoption of circular economy practices

Abstract

In recent years, the circular economy (CE) has drawn considerable attention from both academia and industry alike, with public procurement emerging as a widely adopted public policy tool for achieving economic goals and sustainable social development. However, the impact of public procurement on firms’ adoption of the CE and the mechanism affecting this relation are not fully understood. By analyzing a sample of Chinese listed firms from 2010 to 2020 based on logit regression models, we find that supplier firms engaging in public procurement are more likely to adopt CE practices. In addition, we find that an increase in firms’ market power weakens the positive effect of public procurement on CE adoption, whereas government attention and institutional ownership strengthen this effect. Furthermore, we distinguish between local governments and the Chinese central government as buyers and find that local governments play a more significant role in promoting CE adoption than the central government. This study provides the first empirical evidence of the relation between public procurement and CE adoption and identifies the mechanism by which public procurement affects CE adoption.