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Advancing the circular economy in Europe: The role of eco-innovation, economic complexity, and digitalization

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  • Afolabi, Joshua Adeyemi

Abstract

The global economy faces serious challenges, including resource depletion and environmental degradation, that have paved the way for the emergence of a circular economy (CE). To maintain the European Union's (EU) leadership in CE transition, this paper examines the role of eco-innovation, economic complexity, and digitalization in advancing CE using 2010–2021 data from 22 EU member states. The Panel Ordinary Least Squares (POLS), Driscoll-Kraay Standard Error (DKSE), and Method of Moments Quantile Regression (MMQR) estimation methods are used to analyze the impact of these three factors on CE. The Dumitrescu-Hurlin panel causality test was also applied. The results show eco-innovation, economic complexity, and digitalization as significant drivers of CE, with digitalization emerging as the most influential, followed by economic complexity and eco-innovation. However, their impact differs across levels of CE performance, with eco-innovation being more effective in countries with lower CE performance, and economic complexity showing greater benefits in more advanced economies. Further analyses show causal independence between digitalization and CE, and eco-innovation and CE, but a unidirectional causality from economic complexity to CE. These findings suggest the need to strengthen country-specific and regional efforts to improve CE and enable the EU to achieve its long-term environmental and economic goals.

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  • Afolabi, Joshua Adeyemi, 2025. "Advancing the circular economy in Europe: The role of eco-innovation, economic complexity, and digitalization," Technology in Society, Elsevier, vol. 83(C).
    • Handle: RePEc:eee:teinso:v:83:y:2025:i:c:s0160791x25002179
    DOI: 10.1016/j.techsoc.2025.103027
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    JEL classification:

    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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