Evaluating the Impact of Digitalization on Circular Economy Growth: Insights from Structural Equation Modelling

The transition to a circular economy (CE) is becoming increasingly crucial in response to rising environmental issues, resource limitations, and waste management challenges. Simultaneously, the digital economy, fueled by innovative technologies presents significant opportunities for enhancing sustainability. This research proposes a conceptual framework to examine the interplay between digital technologies and CE principles, employing the Structural Equation Modeling (SEM) method to analyze the primary factors influencing this shift. So, the interplay between the digital economy and circular economy (CE) practices, analyzing how digital technologies foster CE growth and enhance sustainability performance is the key aspect. A quantitative research design, with a targeted sample of 300 working individuals from diverse industries (manufacturing, technology, energy, waste management, and consumer goods), forms the study's sample. Data were collected through a structured survey instrument using validated scales. Confirmatory Factor Analysis (CFA) and SEM techniques were employed to test hypotheses and validate constructs. Using Structural Equation Modeling (SEM), the study had examined direct effects of digital technologies on CE principles, the mediating role of CE principles in driving sustainability outcomes, and moderating effects of regulatory support and organizational readiness. Fit indices confirmed the model's robustness, while path analysis and mediation analysis highlighted the significant roles of digital technologies and CE principles in enhancing sustainability. Results revealed that digital infrastructure (β = 0.45), innovation (β = 0.41), data analytics (β = 0.50), and platforms (β = 0.47) significantly drive resource efficiency, waste reduction, product life extension, and circular business models. These CE principles, in turn, positively influence CE adoption (β = 0.38) and sustainability performance (β = 0.38). Regulatory support (β = 0.43) and organizational readiness (β = 0.42) emerge as critical enablers. Multi-group analysis underscores the varying impact of these factors across organizational contexts. The findings elucidate how digital transformation influences CE adoption and sustainability performance. Overall, this research highlights the interconnectedness of digital transformation, CE practices, and sustainability, offering valuable insights for policymakers and organizations aiming to align digital and circular strategies for sustainable development.