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The Quadrilemma of a Small Open Circular Economy Through a Prism of the 9R Strategies


  • Patrick Grüning

    (Latvijas Banka & Vilnius University)

  • Justina Banionienė

    (Kaunas University of Technology)

  • Lina Dagilienė

    (Kaunas University of Technology)

  • Michael Donadelli

    (University of Brescia)

  • Marcus Jüppner

    (Deutsche Bundesbank, Goethe University)

  • Renatas Kizys

    (University of Southampton)

  • Kai Lessmann

    (Potsdam Institute for Climate Impact Research)


The Circular Economy (CE) challenges the traditional linear economy model to arrive at a sustainable economy that minimizes resource use, its negative environmental impact, and dependency on resource imports. We develop a multi-sector dynamic stochastic general equilibrium small open economy model with endogenous adoption of exogenous foreign technology innovations, endogenous environmental quality, and CE elements, comprising recyclable waste as well as recycling and refurbishing sectors. We analyze the model-implied impulse response functions with respect to several economic shocks and conduct a rich scenario-based analysis, for which the scenarios are derived from the 9R strategies. We find important trade-offs to be considered by the economy with respect to circularity, trade, environment, and growth – the four dimensions of the quadrilemma of a small open circular economy. We find that none of the six shocks considered and in none of the eight scenarios analyzed the quadrilemma can be resolved. However, a positive shock to the price of energy or a lower energy share in one of the two intermediate goods sectors provide benefits to three out of four dimensions of the quadrilemma.

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  • Patrick Grüning & Justina Banionienė & Lina Dagilienė & Michael Donadelli & Marcus Jüppner & Renatas Kizys & Kai Lessmann, 2021. "The Quadrilemma of a Small Open Circular Economy Through a Prism of the 9R Strategies," Bank of Lithuania Working Paper Series 96, Bank of Lithuania.
  • Handle: RePEc:lie:wpaper:96

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    More about this item


    Circular economy; Small open economy; Recycling; Refurbishing; Endogenous economic growth; Technology adoption; General equilibrium; Energy;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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