“Local Heroes”: Construction firms pioneering circular innovation

Innovation in the construction sector is critical to reducing environmental impacts, yet the adoption of circular innovations remains poorly understood. This paper examines the determinants of circular innovation adoption among 376 construction firms in the Emilia-Romagna region of Italy, based on an original survey dataset. Our analysis reveals that R&D investments increase the likelihood of circular innovation adoption by 24 percentage points, while larger firm size raises it by 13 points. Local market orientation exerts a strong positive effect: firms generating at least 50 % of their turnover locally are 15 percentage points more likely to adopt a circular innovation. Regulatory factors are not significant in aggregate, but become decisive for specific circular practices such as selective demolition and the use of sustainable inputs. Theoretically, the study demonstrates that circular innovations follow different adoption dynamics than traditional innovations in the construction industry, with proximity-based networks and local material flows playing a central role. Policy-wise, findings highlight the need to support R&D, especially in smaller firms, strengthen targeted regulatory incentives, and foster local inter-firm collaborations to reduce transaction costs and overcome secondary material quality risks.