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Abstract

The transition to a circular economy has become an important topic in thinking about the sustainable future of humanity. An important and often disputed point in the academic debate on this topic is the relationship between the need to achieve constant economic growth on the one hand and the preservation and protection of the environment on the other. This paper contributes to that debate by assessing the causality of the circular and economic performances of selected countries. The analysis is based on panel data from the EU Monitoring Framework database and World Bank DataBank covering 27 European Union (EU) countries during the period 2000 to 2021. The goal is to examine the impact of circular economy indicators on gross domestic product (GDP) per capita in the EU. The research is conducted through descriptive statistics and correlation and regression analysis. The obtained results indicate a strong positive correlation between circular economy indicators and GDP per capita. Also, results revealed a positive and statistically significant impact of Resource Productivity (RP), Generation of municipal waste per capita (MWpc), and Recycling rate of municipal waste (RRMW) on economic growth (GDPpc). The conclusions can be useful to EU policymakers in formulating a strategy for improving the performance of the circular economy, but also for harmonizing that improvement with the economic performance of the member states. This particularly refers to taking measures to improve resource productivity and encouraging both producers and consumers to increase waste recycling capacity, as significant factors of economic growth.

Keywords

circular economy economic growth green-growth post-growth EU countries

Introduction

The current economic system around the world works on the principle of linearity—people take resources from nature, use them to make goods, and finally throw them away as waste. This is simply called the “take–make–waste” linear economic model of production and consumption (Kirchherr et al., 2023; Neves & Marques, 2022). The permanent sense of scarcity in a consumerist society and the constant need for companies to generate profits as quickly as possible has fueled this linearity for decades. An important part of this model is “planned obsolescence”, which describes the strategy of companies to design products with limited (and very short) lifetimes in order to encourage consumers to seek quick and continuous replacements (Bisschop et al., 2022; European Parliament, 2023). The obvious intention of shortening the replacement cycle is to stimulate ever-increasing demand at the expense of consumers, but consequently also at the expense of nature.

The existing economic model has led humanity to use more materials than nature can provide today. More precisely, the contemporary global population uses 1.6 Earths to support its consumption, which means we extract roughly 60% more of the Earth’s resources than it can regenerate each year (World Economic Forum, 2021). Considering the estimated increase in the world’s population, this excess could amount to 3 to 4 Earths in 2050. According to the data of the Circle Economy (2023), we have lost an area roughly the size of Iraq (420 million hectares) to deforestation in the last 30 years, while almost half of the Earth’s soil is severely degraded; 85% of global fish stocks are on the brink of extinction; and wildlife populations have declined by 70% in the past half century. The total exploitation of materials is growing progressively on a global level. It has more than tripled since 1970, but has nearly doubled since 2000, totaling 100 billion tonnes today (Circle Economy, 2023). It is clear that such a trajectory is extremely undesirable or even disastrous for the ecosystem and the entire humanity, which indicates the necessity and urgency of huge changes within the traditional system of production and consumption.

Today’s world is going through a significant transition from a linear economy, which operates according to the described “take–make–waste” model, to a circular economy, which aims to reduce waste and promote sustainable resource use (Marković et al., 2020; Neves & Marques, 2022). This shift is driven by growing concerns about environmental deterioration, resource exploitation, and the need to build a more sustainable and fair economic system. The circular economy offers enormous opportunities to stop this devastation of nature and lay the foundations for future sustainable development (Oberč et al., 2022). It seems that this transition to a circular economy has become a necessity rather than an option if we want to preserve the environment and not endanger the lives of future generations.

The circular economy is a production and consumption paradigm that promotes the design of products for longevity, but also the reuse, repair, refurbishment, and recycling of existing resources and goods as long as possible (Morseletto, 2020). The main intention of this is to extend the life cycle of an existing product in order to prevent excessive and unnecessary exploitation of resources in the production of a new one (Milios, 2018). In addition to the huge reduction in the exploitation of raw materials, it also enables the minimization of waste. And finally, when the product becomes “waste” for the consumer, thanks to recycling as an important operation within the circular economy, its ingredients are reused in the production process.

Companies, governments, and individuals across the globe are starting to embrace those circular principles to create a closed-loop system where materials and products are kept in use as long as possible. While there are still many challenges to be addressed, the shift toward a circular economy represents a promising step toward a more sustainable and resilient world (Geissdoerfer et al., 2017; Hysa et al., 2020). However, not all countries in the world are equally equipped and successful in applying the principles of circularity. Some countries have managed to raise public awareness of the circular economy importance better than others; some of them adopted progressive laws earlier than others; while some are better at enforcing laws and policies in this area (Mazur-Wierzbicka, 2021). Consequently, the differences in the achieved level of development of circular economy principles and its practical results among countries in a global perspective are obvious and significant.

The overall intention of this research is to contribute to the literature on measuring the circular economy and determining the causal relationship between its results and the economic performance of specific national economies. The main goal of the paper is to evaluate the impact of circular economic indicators on GDP per capita in the EU27 countries. In this way, this paper aims to provide useful insights into the economic costs and benefits of “becoming circular” and to address the main risks in harmonizing the economic and circular performance in the EU.

The remaining part of the paper consists of five separate segments. The theoretical background of evolution in understanding the relationship between the circular economy and economic growth, together with newer approaches to observing this issue, is presented in the first part of the manuscript. The literature review of recent empirical studies on the causal relationship between circularity and the economic performance of EU countries is presented in the second section. The methodology and hypotheses are defined in the third part of the paper, followed by the section in which the authors present the research results and discuss them. Finally, the last segment provides the concluding remarks.

Theoretical Background

Are There Limits to Growth?

The question of whether economic growth can be achieved while respecting environmental sustainability standards has attracted the attention of theorists and practitioners from various fields for decades. Consideration of this issue in a systematized way in recent history began with the report The limits to growth (D. H. Meadows et al., 1972) published more than half a century ago. One of the main conclusions in this report is summarized in the prediction that “if the present growth trends in world population, industrialization, pollution, food production, and resource depletion continue unchanged, the limits to growth on this planet will be reached sometime within the next 100 years” (p. 23). Considering the time that has passed since the publication of this report, we are more than halfway to those terrifying limits.

The same authors confirm and even reinforce this concern in their book published 30 years after the previous one (D. Meadows et al., 2005), admitting that they are “much more pessimistic today [2005]” than they were three decades ago. The authors saw the global challenge of sustainability at that time as balancing two opposing goals: humanity should increase the level of consumption of the world’s poor on the one hand, while at the same time reducing humanity’s overall ecological footprint on the other. Their assessment was that in the best-case scenario, it would take decades to develop new technologies, change the behavior of individuals, and expand the time horizon of planning for a better sustainable future. As the authors note, no modern political party has managed to gain widespread support for such a program, especially not from the wealthy and powerful, who could create space for the poor to thrive by shrinking their own footprints. It seems that such a political group has not appeared even to this day. Meanwhile, the global footprint continues to grow day by day.

Even 50 years after the first publication of The limits to growth, the debate on this topic seems to have intensified. A number of researchers are trying to understand how the limits of material (and economic) growth will shape our global future. The recent academic debate in the literature on the causality of economic performances and the environment has produced a clear discourse regarding the possible direction for achieving future human sustainability. There are two opposing sides to thinking about economic growth in terms of sustainability (“green-growth” and “post-growth”).

Green-Growth versus Post-Growth

The first approach emphasizes “green-growth” as a necessity for social, economic, and environmental development in the future. Proponents of this approach (C. Chen et al., 2018; Dong et al., 2022; Kirchherr, 2022) believe that humanity can continue to develop economic activity while reducing harmful emissions and exploitation of resources from nature. The key premise of green-growth lies in the decoupling—minimizing the impact of increased economic activity (increased real GDP growth) on the environment. It can be achieved through the application of advanced technologies that will enable the improvement of economic efficiency, primarily in the field of production and transportation; by promoting and directing consumer habits toward less energy-intensive production (such as extending the longevity of product use and increasing the use of public transport); but also by designing the economy with less use of materials and greater participation of the service sector (Lenaerts et al., 2022; Popović & Radivojević, 2022). Green-growth thus became a syntagma for the complete harmonization of environmental improvement and continuous economic growth.

The opposite perspective is taken by proponents of “post-growth” thinking (Bauwens, 2021; Cosme et al., 2017; D’Alisa & Kallis, 2020), who claim that an infinite increase in production and consumption is not possible on a finite Earth. In addition to post-growth, these “green growth skeptics” include other groups of thinkers who advocate “degrowth” and “donut economics,” but also “prosperity without growth” and “wellbeing economics.” They insist on recognizing the fact that there are clear planetary boundaries that are being disrupted by the existing consumer society that doubles its production every 23 years (assuming a growth rate of 3% per year) (Savini, 2022). The main idea of the post-growth approach is that humanity must eliminate addiction to consumption growth and achieve a state of lower economic activity in order to avoid environmental catastrophe (Gerber, 2020; Savini, Ferreira, & Schönfeld, 2022). Furthermore, advocates of this thinking suggest that economic indicators such as GDP are not credible measures of human prosperity and development (Jackson, 2017; Raworth, 2017).

Circular Economy and Economic Growth

The circular economy occupies a somewhat neutral place in these academic discussions, but it is by definition closer to the green-growth paradigm because it does not explicitly require the reduction of consumption and production as a post-growth (degrowth) approach. Kirchherr et al. (2017) analyzed 114 definitions of the circular economy and their findings show that it is most frequently presented as a combination of reduce, reuse, and recycle activities. The European Union (2020) defines the circular economy as “an economic system whereby the value of products, materials, and other resources in the economy is maintained for as long as possible, enhancing their efficient use in production and consumption, thereby reducing the environmental impact of their use, minimizing waste and the release of hazardous substances at all stages of their life cycle, including through the application of the waste hierarchy” (p. 26). According to the Ellen MacArthur Foundation (2023), circular economy decouples economic activity from the consumption of finite resources and is based on three principles: (1) eliminate waste and pollution; (2) circulate products and materials (at their highest value); and (3) regenerate nature.

Savini (2022) believes that the concept of the circular economy, viewed independently, does not offer much in solving socio-ecological problems because it does not require a reduction in consumption and production. In his view, the idea of a circular economy can only offer a powerful path for material reduction if it is combined with a degrowth approach.

Many other researchers emphasize the importance of combining economic with socio-ecological goals in designing the economic structure of the future that will be able to cope with environmental problems. For example, Hofmann (2022) states that the so-called hegemonic mania for economic growth can lead to a one-dimensional observation of reality in which we will use only quantitative measures to assess the health of an economy, wrongly putting a sign of equality between the quality of life and material wealth. In that perspective, the natural world would be reduced to a pure production factor, which must first be quantified in monetary terms in order to appear worthy of protection. Others even believe that environmental protection goals are unachievable without a significant slowdown in economic activity. Such an attitude can be summed up very effectively in Savini’s (2022) conclusion sentence that “without […] degrowth—post-growth will remain wishful thinking, the donut will remain a tool without purpose, and the circular economy will become a great new money-making machine with little environmental results.”

The Necessity of a Global Shift Towards Circularity

A circular economy provides a blueprint for fostering long-term economic prosperity and helps to achieve a number of sustainable development goals (Circular Economy Coalition for Latin America and the Caribbean, 2022). Only 7.2% of the global economy is currently circular, and this number is declining year over year due to increased material extraction and consumption (Circle Economy, 2023). The growing exploitation and consumption of materials in the world as a result of the increasing global population and rapid industrialization have taken on a very worrying trend. The world population, which now numbers more than 8 billion people, consumes more than 100 million tons of material per year. Circle Economy (2023) predicts that the amount of this material consumption will double by 2050 compared to 2015 levels, threatening to seriously break the endurance limits of natural resources.

Addressing this challenge will require a range of solutions implemented worldwide, including improving resource efficiency, promoting circular economy practices, and transitioning to cleaner and more sustainable forms of energy. Ultimately, it will require a shift in societal values, away from consumerism and toward more sustainable patterns of production and consumption (Antić et al., 2021; Oberč et al., 2022; Veljković et al., 2022). Establishing and applying the principles of circular economy in the world will enable us to “fulfill people’s needs with only 70% of the materials we now extract and use—moving human activity back within the safe limits of the planet” (Circle Economy, 2023, p. 8). This implies a global synergy in the application of circular principles. While individual countries can take steps to promote circularity, the interconnected nature of the global economy means that a global shift toward circularity is necessary to achieve meaningful change.

The EU as a Driving Force in Increasing Circularity and How to Monitor Its Achievements

The EU has an important role in the development and promotion of the circular economy. The European Commission endorsed the European Green Deal in 2020 as a package of legislative proposals with the main goal of making the EU a climate-neutral continent by 2050. It emphasizes the necessity of a comprehensive and cross-sectoral strategy in which all pertinent policy domains contribute to the overarching climate-related objective. The key to reaching EU climate neutrality by 2050 is decoupling economic growth from resource use and switching to circular systems in production and consumption (European Council, 2023). This is also confirmed by the fact that the European Commission adopted the Circular Economy Action Plan in 2020. The following goals of this document have been identified (European Commission, 2020): make sustainable products the norm in the EU; empower consumers and public buyers; focus on the sectors that use most resources and where the potential for circularity is high (such as: electronics and ICT, batteries and vehicles, packaging, plastics, textiles, construction and buildings, food, water, and nutrients); ensure less waste; make circularity work for people, regions, and cities; and lead global efforts on circular economy.

In order to supervise the process of achieving the stated goals, the European Commission has established a monitoring framework for tracking progress toward a circular economy (Eurostat, 2023). This framework was adopted in 2018 to capture the main elements of a circular economy by measuring the direct and indirect benefits of “going circular”; valuing the contribution of a circular economy in living well within the limits of the planet; and addressing risks in energy and material supply. It consists of numerous statistical indicators grouped into the following five thematic sections: (1) Production and consumption; (2) Waste management; (3) Secondary raw materials; (4) Competitiveness and innovation; and (5) Global sustainability and resilience. This framework is widely accepted in the literature by researchers from various fields as a reference database on the state of the circular economy in the EU. A number of researchers have used these circular economy indicators to demonstrate their causality with other observed variables in their research.

Application of EU Circular Economy Indicators in Recent Studies

Bianchi and Cordella (2023) explore the interaction between natural resource exploitation and some of the mentioned circular economy indicators, as well as the consequences of major socio-economic drivers such as economic and demographic growth and economic structures. Their findings confirm that encouraging the transition to a circular economy undoubtedly contributes to minimizing the exploitation of primary resources. More precisely, their empirical analysis of a sample of 28 European countries shows that the primary resources allocated annually in connection with economic growth are approximately four times greater than the resources saved by circular economy initiatives.

A similar topic was investigated by Knäble et al. (2022), who analyzed the effect of the circular economy indicators on the economic, environmental, and social dimensions of sustainable development. Their research on a sample of 25 European countries showed a great impact of the circular economy on achieving sustainable development, which has positive effects on the economy, the environment, and society. Numerous studies (Busu & Gyorgy, 2016; Busu & Trica, 2019; Georgescu et al., 2022) have examined the interdependence of the circular economy (or some of its indicators) and economic growth. Most of them confirmed the strong impact of circular economy indicators on economic growth and the conclusion that they must go hand in hand if we want to reach a sustainable future for humanity (Binswanger, 2009; Ferrante & Germani, 2020; Geissdoerfer et al., 2017).

However, there are authors who believe that the circular economy represents a significant economic and social risk with substantial negative consequences in certain countries. For example, Repp et al. (2021) use the value chains of clothing imported into the EU from the five largest exporters (China, Bangladesh, India, Turkey, and Cambodia) to assess the effects of the circular economy on global employment trends. Their findings suggest that employment could be significantly reduced in low- to upper-middle-income countries outside the EU, concluding that the benefits and disadvantages of the circular transition appear to be unevenly distributed, with the main negative effects borne by non-EU countries.

Methodology and Hypotheses

Considering the above-elaborated theoretical insights into the circular economy and its importance for economic growth, as well as the conclusions reached in the numerous research papers outlined in the theoretical background, the analysis in this study is based on the circular economy indicators from the EU monitoring framework (Eurostat, 2023). As discussed in the theoretical background, the EU monitoring framework consists of five thematic areas: (1) production and consumption; (2) waste management; (3) secondary raw materials; (4) competitiveness and innovation; and (5) global sustainability and resilience. The reason for choosing this database as the source of data is that it assesses the direct and indirect benefits of adopting circular practices, considers the resource availability, and recognizes the contribution of a circular economy in enabling sustainable living on the planet. The list of variables used in the analysis is based on the comprehensive analysis of variables used in previous studies by covering the key components of the circular economy (Table 1). The independent variables used in this study are Resource Productivity (RP), Generation of municipal waste per capita (MWpc), and the Recycling rate of municipal waste (RRMW), while the dependent variable is GDP per capita in PPP constant 2017 international $ (GDPpc).

Table 1.

List of Used Variables.

Variable	Variable type
Resource Productivity (RP)	Predictor
Generation of municipal waste per capita (MWpc)	Predictor
Recycling rate of municipal waste (RRMW)	Predictor
GDP per capita in PPP constant 2017 international $ (GDPpc)	Dependent

Source. Authors.

Resource Productivity is a key indicator of a circular economy and it has been used in numerous studies (Busu & Trica, 2019; Mongo et al., 2022; Vranjanac et al., 2023; Vuţă et al., 2018). It is calculated as the GDP divided by domestic material consumption (DMC) which measures the total amount of materials directly used by an economy and expressed in the purchasing power standard (PPS) per kilogram (Eurostat, 2023). This indicator effectively gages progress toward a circular economy, as more circular economies consume fewer natural resources and impose reduced environmental strain (Robaina et al., 2020). Hence, we expect that there is a positive relationship between Resource Productivity and economic growth.

Besides resource consumption, the study employs the indicator of waste generation, also used in several previous studies (C. C. Chen & Pao, 2022; Georgescu et al., 2022; Mazur-Wierzbicka, 2021; Vranjanac et al., 2023). It measures the waste collected from households and other sources at the municipality level and disposed of through the waste management system and expressed in kilograms per capita (Eurostat, 2023). This indicator effectively captures the efficiency of the waste management system and it is expected to have a positive impact on economic growth.

As regards the recycling activities, the study employs the Recycling Rate of Municipal Waste (RRMW), also used in various studies (Busu & Trica, 2019; C. C. Chen & Pao, 2022; Georgescu et al., 2022; Hysa et al., 2020; Knäble et al., 2022; Mazur-Wierzbicka, 2021; Mongo et al., 2022; Vranjanac et al., 2023). It measures the share of recycled municipal waste, including material recycling, composting, and anaerobic digestion, in total municipal waste generation (Eurostat, 2023). Recycling is viewed as a key factor in lowering natural resource usage, enhancing resource productivity, and consequently, achieving a more circular economy (Robaina et al., 2020). This metric is a primary measure of recycling efficiency and it is expected to have a positive impact on economic growth.

In order to analyze the impact of circular economy indicators on economic growth and to test the defined hypotheses, the sample of EU27 countries is employed covering the period 2000 to 2021. The data are obtained from the Eurostat database regarding Circular Economy Indicators and the World Bank databank regarding World Development Indicators.

Standing on the theoretical background, particularly green growth theory, and extensive review of previous studies, the following hypotheses are investigated:

H1: A positive correlation exists between Resource Productivity (RP), Generation of municipal waste per capita (MWpc), Recycling rate of municipal waste (RRMW), and GDP per capita;

H2: Resource Productivity (RP), Generation of municipal waste per capita (MWpc), and Recycling rate of municipal waste (RRMW) positively influence the GDP per capita;

To accomplish the main goal of the paper—to evaluate the impact of circular economic indicators on GDP per capita in the EU27 countries, correlation and regression analysis are performed. Since we have 27 cross-sectional units (27 EU countries) and 22 time periods (22 years), the panel data model will be analyzed. The dataset undergoes normality checks using the Shapiro-Wilk and Shapiro-Francia tests. To assess the relationships between variables, the Spearman correlation coefficient is utilized, ranging from −1 to +1, where values near ±1 signify a strong association between variables. According to Cohen et al. (2003), the correlation is very weak if the correlation coefficient is in the range of 0 to .19, weak in the range of .20 to .39, moderate in the range of .40 to .59, strong in the range of .60 to .79, and very strong in the range of .80 to 1.

Since we have the panel data, the F-test, Breusch-Pagan LM test, and Hausman test are conducted to select the most suitable regression model. The F-test’s null hypothesis endorsement suggests the Pooled Regression Model (Pooled) is appropriate, while its rejection favors the Fixed Effects Model (FEM). Similarly, the Breusch-Pagan LM test’s null hypothesis endorsement favors the Pooled model, and its rejection suggests the Random Effects Model (REM) is more suitable. Finally, if the null hypothesis in the Hausman test is accepted, it indicates the REM’s suitability (Gujarati, 2004).

Research Results and Discussion

The descriptive statistics are presented in Table 2. The average RP in the analyzed countries is 1.56 PPS per kg. The minimum value of 0.43 PPS per kilogram was recorded in Bulgaria in 2001, while the maximum value of 5.68 PPS per kg was recorded in the Netherlands in 2021. The average MWpc in the analyzed countries is 496.35 kg per capita, while the minimum value of 239 kg per capita was recorded in Slovakia in 2001, and the maximum value of 862 kg per capita was recorded in Denmark in 2011. The average value of RRMW in the analyzed countries is 29.53%, while the minimum value of 0% was recorded in Latvia and Romania in 2000 and Lithuania in 2000 to 2003, and a maximum value of 71.1% is recorded in Germany in 2021. The average value of GDPpc in the analyzed countries is 39,378.18 PPP (constant 2017 international $), while the minimum value of 10,504.26 PPP (constant 2017 international $) was recorded in Bulgaria in 2000, and the maximum value of 120.647 PPP (constant 2017 international $) in Luxembourg in 2007.

Table 2.

Descriptive Statistics.

Variable	Min	Max	Mean	SD
RP	0.43	5.68	1.5630	0.7813
MWpc	239	862	496.3488	131.457
RRMW	0	71.1	29.5336	18.2113
GDPpc	10,504.26	120,647.80	39,378.18	18,881.92

Source. Authors.

Before conducting correlation analyses, the Shapiro-Wilk and Shapiro-Francia normality tests are performed on the sample data and the results have undoubtedly confirmed the non-normality of the data (p < .05) (Table 3). Hence, the correlation analysis has been conducted by applying the non-parametric Spearman’s correlation coefficient.

Table 3.

Normality Tests.

Variable	Shapiro-Wilk		Shapiro-Francia
Variable	W	p-Value	W’	p-Value
RP	0.91073	.00000	0.91062	.00001
MWpc	0.98398	.00001	0.98529	.00003
RRMW	0.96266	.00000	0.96739	.00001
GDPpc	0.80629	.00000	0.80615	.00001

Source. Authors.

The correlation analysis results should reveal if there is a relationship between the analyzed indicators and what is the strength of that association, thus enabling to test hypothesis H1. The correlation results are presented in Table 4. According to the results, there is a positive correlation between GDPpc and all three circular economy indicators (RP, MWpc, RRMW). Results show that the positive correlation between circular economy indicators (RP, MWpc, RRMW) and GDPpc is strong and statistically significant (p < .01). The strongest relationship is between the GDPpc and RRMW (0.76). Besides, a positive correlation exists between circular economy indicators, whereas the correlation between RP and MWpc is weak (.38), between MWpc and RRMW is moderate (.43), and between RP and RRMW is strong (.57). Since the correlation among independent variables, that is, the circular economy indicators (RP, MWpc, RRMW) is less than .75, there would be no multicollinearity problem in the panel data model. These results are in line with the results of Mazur-Wierzbicka (2021), who found a moderate positive correlation between MWpc and RRMW in the sample of EU28 countries. The obtained results in this study confirm the first hypothesis (H1).

Table 4.

Correlation Results.

Variable	RP	MWpc	RRMW	GDPpc
RP	1
MWpc	.3799*	1
RRMW	.5700*	.4287*	1
GDPpc	.5778*	.6858*	.7646*	1

Source. Authors.

Note.*Correlation is significant at the .01 level (two-tailed).

Following the correlation analysis, diagnostic checking is performed to determine the appropriate panel data model (Table 5). The fixed effect model (FEM) is chosen for fitting the data, and the results are presented in Table 6. Namely, the results of the F-test point toward the FEM model, while the results of the Breusch-Pagan LM test point toward the REM model. The final decision is made based on the results of the Hausman test, according to which the FEM model is appropriate at a 1% significance level (p = .0000).

Table 5.

Test Results for the Appropriateness of the Panel Data Model.

Model	F-test	Breusch-Pagan LM	Hausman
Model	H₀: Pooled, H₁: FEM	H₀: Pooled, H₁: REM	H₀: REM, H₁: FEM
Model	113.21 (0.0000)	3330.29 (0.0000)	26.89 (0.0000)

Source. Authors.

Note. p values are given in ( ).

Table 6.

Regression Results.

	Constant	ln RP	ln MWpc	ln RRMW	R ²	F statistics
ln GDPpc	9.336998 [29.36] (0.000)	0.1445024 [3.74] (0.001)	0.125589 [2.22] (0.038)	0.1099886 [11.95] (0.000)	0.5330	308.72 (0.0000)

Source. Authors.

Note. t values are given in [ ], p values are given in ( ).

Model analyzes the impact of RP, MWpc, and RRMW on GDPpc in 27 EU countries covering the period 2000 to 2021. According to Hill et al. (2021) there is no generic way to address endogeneity concerns, but specific methods can be applied to address specific causes of endogeneity. Hence, after performing the FEM model, the Pasaran CD (cross-sectional dependence) test is used to test whether the residuals are correlated across countries. The results of the Pasaran CD test have revealed the presence of cross-sectional dependence (15.399, p = .0000). Additionally, the results of the Wooldridge test for serial correlation in panel data revealed that data have first-order autocorrelation (F = 157.160, p = .0000). Therefore, the FEM model with Driscoll and Kraay standard errors with lag(2) is used to solve for the cross-sectional dependence and autocorrelation. According to Hoechle (2007), these standard errors are heteroscedasticity consistent and robust to very general forms of spatial and temporal dependence when the time dimension is large. The results are presented in Table 6.

Obtained results show that Resource Productivity (RP), Generation of municipal waste per capita (MWpc) and Recycling rate of municipal waste (RRMW) have positive and statistically significant impact on economic growth (GDPpc). The estimated model explains a 53.30% change in GDPpc and this model is statistically significant at a 1% level of significance as confirmed by the F statistics. If Resource Productivity (RP) increases by 1% GDPpc will increase by 0.14%, ceteris paribus. If Generation of municipal waste per capita (MWpc) increases by 1%, GDPpc will increase by 0.12%, ceteris paribus. If Recycling rate of municipal waste (RRMW) increases by 1%, GDPpc will increase by 0.11%, ceteris paribus.

The positive impact of resource productivity on the real GDP growth rate was also revealed in the study by Vuţă et al. (2018), but this impact was statistically insignificant, whereas Busu and Trica (2019) determined the statistically significant impact of resource productivity on the GDP per capita growth. This signifies a more direct relationship between the efficient use of resources and the wealth of a nation per individual, implying that nations that utilize resources more efficiently tend to have higher per capita economic growth. An increase in resource productivity signifies that an economy can produce more goods and services with the same or fewer resources, which leads to cost savings, enhanced competitiveness, and potentially, higher profits for businesses. Also, economies with high resource productivity are often more resilient to fluctuations in resource prices, as they are less dependent on large volumes of raw materials. This resilience translates into more stable economic growth and contributes to higher GDP per capita. Furthermore, higher resource productivity is usually associated with lower environmental impact, as it involves using resources more efficiently and reducing waste. This alignment with sustainable practices can lead to a better environmental footprint, contributing to long-term ecological balance which is crucial for sustainable economic growth.

Busu and Trica (2019) also confirmed the positive impact of the recycling rate of municipal waste on the GDP per capita growth, which is in line with the results of this study and Hysa et al. (2020), thus determining municipality waste management as a crucial factor in economic growth. This suggests a strong link between waste management practices, particularly recycling, and economic performance. The study by Georgescu et al. (2022) also confirmed the positive effect of the recycling rate of municipal waste on GDP per capita, pointing out that an increase in RRMW by 1% would increase GDP per capita by 0.11%. This quantification is crucial as it provides policymakers with a tangible goal for increasing recycling rates and thereby positively influencing economic growth. Besides, these authors revealed the positive impact of the generation of municipal waste per capita on economic growth, which is in line with the results of this study. The positive impact of municipal waste generation per capita on economic growth may initially seem counterintuitive. However, this could be interpreted as an indicator of higher consumption patterns typically associated with more affluent societies, which often have higher levels of GDP. It also reflects the complexity of the relationship between waste generation and economic growth, highlighting the need for efficient waste management strategies to balance economic development with environmental sustainability.

The conducted study confirms that circular economy indicators have a positive impact on economic growth in the EU27 countries. The strongest influence on economic growth has Resource Productivity. These results confirm the second hypothesis (H2). The positive effect that measures associated with the circular economy have on economic growth, confirms the European point of view that an increase in resource productivity by 30% by 2030 may lead to GDP growth of almost 1% (Vuţă et al., 2018). These findings collectively suggest a critical role for efficient resource use and waste management in driving economic growth. This underscores the importance of policies aimed at improving recycling infrastructure and encouraging sustainable consumption patterns. However, the relationship between waste generation and economic growth is nuanced and might vary based on the level of economic development, societal consumption patterns, and the effectiveness of waste management systems in different countries.

As discussed in the theoretical part, the circular economy concept advocates for a regenerative approach, aiming to retain the value of products, materials, and resources in the economy for as long as possible, and to minimize waste generation, and waste management policies are a cornerstone in this approach, as they directly address the reduction, reuse, and recycling of waste. Effective waste management policies focus not just on how to deal with waste once it is created, but also on how to prevent waste in the first place. This prevention strategy is aligned with the circular economy’s principle of minimizing resource inputs and controlling excess production at the source. Achieving circular economy objectives through waste management requires the integration of policies across various sectors and levels of governance. It also involves engaging a wide range of stakeholders, including businesses, consumers, waste management entities, and policy-makers, to ensure collective action toward common goals.

The presented research results could hold significant value for public authorities at local, regional, and national levels involved in establishing legislative frameworks, as well as for businesses formulating strategies in line with the anticipated impacts of implementing a circular economy. The estimated model offers valuable insights for companies, demonstrating that economic growth is attainable not merely through the consumption of raw materials, but also by reintegrating waste back into the production process, thereby lowering associated expenses. This approach could result in a heightened demand for eco-friendly products, spur the development of innovative new products, and intensify initiatives in research and innovation. These results build upon the green-growth theory which highlights the application of advanced technologies for improving economic efficiency (Lenaerts et al., 2022), and confirms circular economy principles in terms of elimination of waste and pollution, circulation of products and materials, and (3) regeneration of nature (the Ellen MacArthur Foundation, 2023).

Conclusion

The circular economy is an essential part of the EU’s wider transformation toward climate neutrality and a sustainable future. The European Green Deal defines the Circular Economy Action Plan as a future-oriented agenda for achieving a cleaner and more competitive Europe. Decoupling economic growth from resource use is considered one of the main tasks in this action plan. In other words, the effectiveness of circular and economic parameters decoupling will largely determine the outcome of the transition toward sustainable economic systems in EU countries.

This research contributes to the consideration of causality between economic performance and circularity in the EU. More specifically, the paper measures the impact of circular economy indicators on the GDP per capita of EU27 countries covering the period 2000 to 2021. According to the results, it has been determined the positive and statistically significant impact of the circular economy on economic growth. In particular, an increase in the resource productivity, municipality waste generation per capita, and recycling rate of municipality waste led to an increase in the GDP per capita in the EU27 countries. These results are in line with studies conducted in the previous period regarding the importance of a circular economy for economic growth (Busu & Trica, 2019; Georgescu et al., 2022; Hysa et al., 2020; Vuţă et al., 2018).

This study especially adds to the research gaps identified in the literature, as it covers the long time period (22 years), and investigates and solves the problems of cross-sectional dependence and autocorrelation by applying the Driscoll and Kraay standard errors.

The main limitation of the study is the too-narrow list of circular economy indicators, since many indicators have not been considered due to the data availability. Namely, the EU circular economy monitoring framework for some indicators covers shorter time periods (e.g., 2008 or 2009 till 2019, or even every second year), thus hindering the possibility of taking into account the more comprehensive list of circular economy indicators. Nonetheless, it would be interesting to investigate the impact of other circular economy indicators on the economic growth in the EU countries even for shorter time periods. Additionally, it would be interesting to examine whether there is a positive impact of the circular economy on economic growth in some other groups of countries (e.g., Western Balkan), and then to make comparisons between groups.

Nevertheless, the findings of the study could be very beneficial for policymakers in several directions. First, it is necessary to embed circular economy objectives within a wide range of policy areas including economic development, environmental protection, energy, agriculture, and transportation to create a coherent and holistic approach. Then, it is crucial to develop and enforce regulations that encourage waste reduction, sustainable resource use, and the design of products for longevity, repairability, and recyclability. Since the recycling rate of municipal waste is a very significant factor in economic growth, policymakers should take measures to motivate and stimulate both producers and consumers toward increasing waste recycling capacity. This can be achieved through making producers responsible for the entire lifecycle of their products, encouraging them to design products that are easier to repair, reuse, and recycle. Besides, various stimuli toward an additional increase in resource productivity could lead to sustainable economic growth. Therefore, investing in research and development for new technologies and business models that facilitate circular economy practices is necessary, as well as investing in crucial infrastructure for the collection, sorting, recycling, and remanufacturing of products to support the circular economy transition. What is also very important is to encourage collaboration between government, industry, and academia to share knowledge, resources, and best practices in circular economy implementation, and especially to provide guidance, financial support, and technical assistance to small and medium-sized enterprises to help them adapt to and benefit from circular economy models. Overall, the circular economy will have an inevitable role in future sustainable development.

Footnotes

Authors’ Note

This research was conducted while Jelena Dimovski was at the Faculty of Economics of the University of Priština in Kosovska Mitrovica. She is now at the International Business College Mitrovica (IBC-M) and may be contacted at j.stanojevic@ibcmitrovica.eu.

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This study was supported by the Ministry of Science, Technological Development and Innovation of the Republic of Serbia (Contract No. 451–03-47/2023–01/200148).

ORCID iD

Vladimir Radivojević

Data Availability Statement

All data used in the paper are public and available.

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The Role of Circular Economy in Driving Economic Growth: Evidence from EU Countries

Abstract

Keywords

Introduction

Theoretical Background

Are There Limits to Growth?

Green-Growth versus Post-Growth

Circular Economy and Economic Growth

The Necessity of a Global Shift Towards Circularity

The EU as a Driving Force in Increasing Circularity and How to Monitor Its Achievements

Application of EU Circular Economy Indicators in Recent Studies

Methodology and Hypotheses

Research Results and Discussion

Conclusion

Footnotes

Authors’ Note

Declaration of Conflicting Interests

Funding

ORCID iD

Data Availability Statement

References