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

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  • Mohammad Ashraful Ferdous Chowdhury
  • Muhammad Salah Uddin
  • Zobayer Ahmed
  • Md Amirul Islam

Abstract

The study aims to examine the impact of the circular economy (CE) on sovereign credit risk (SCR) for selected European countries, as well as the moderating effect of institutional quality (IQ). The sample of the study covers 20 European countries, and methodologically, it applies both static panel and dynamic panel two‐step difference generalized method of moments (GMM) models. The robustness of the findings has been verified by the panel quantile regression (PQR) method in the study. The results reveal that CE significantly reduces SCR. With the moderation of IQ, the CE further intensifies the reduction of SCR. Moreover, the PQR results also align with the negative impact of CE on SCR in the lower and midlevel quantiles. The study offers valuable insights for policymakers and academics, highlighting the importance of enhancing IQ and CE principles to enhance creditworthiness. The findings of this study will ensure not only economic efficiency and financial stability but also secure sustainable development across Europe.

Suggested Citation

  • Mohammad Ashraful Ferdous Chowdhury & Muhammad Salah Uddin & Zobayer Ahmed & Md Amirul Islam, 2026. "Circular Economy, Institutional Quality, and Sovereign Credit Risk Nexus: Evidence From European Countries," Business Strategy and the Environment, Wiley Blackwell, vol. 35(2), pages 2469-2481, February.
    • Handle: RePEc:bla:bstrat:v:35:y:2026:i:2:p:2469-2481
    DOI: 10.1002/bse.70305
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