Source: Springer

New Research Contribution on Macroeconomic Impacts on the European Circular Economy

Oslo, 10.10.2024

Vista Analyse, together with partners, has published a new empirical research article on the macroeconomic impacts on the circular economy, focusing on European waste management and recycling. The article, titled "Macroeconomic Influences on Recycling in Europe: An Econometric Investigation" has been published in the renowned Springer journal "Circular Economy and Sustainability" (see Holmen et al. 2024).

Partner Rasmus Bøgh Holmen is the first author and Vista's representative in the research group, and also represents the Institute of Transport Economics in the project. The article was written in collaboration with the Gianni Carvelli at the University of the Sacred Heart, and Kristina Razminienė and Manuela Tvaronavičienė at the Vilnius Gediminas Technical University as a part of the research project "LIFT" on Northern European economic integration. The acronym stands for "Labor market integration and migration, Innovation spillovers and technology transfers, Foreign direct investments and capital mobility, and Trade of commodities and services".

Although the circular economy has received considerable attention over the past two decades, few studies have explored the relationship between recycling and macroeconomic conditions. This article aims to shed light on how macroeconomic factors influence and correlate with recycling indicators, with a focus on European waste management.

In the first part of the article, the researchers examine how macroeconomic indicators impact key circular economy metrics related to waste management and recycling, based on data from European countries from 2000 to 2019, categorized into Western, Southern, and Eastern Europe. An ordinary least squares model serves as the basis for comparison with a fixed-effects model and a model with regional year dummies. In response to Ferrante and Germani's (2020) call for more research on causal studies of this type, the authors also address reverse causality by testing for panel data Granger causality (Dumitrescu and Hurlin 2012) and applying the dynamic panel data method developed by Arellano and Bond (1991).

"We identify clear correlation patterns between macroeconomic variables and circular economy indicators, both in terms of their magnitude and changes over time. However, we do not find robust causal relationships between the variables in the short to medium term," says Holmen.

Secondly, the researchers study variations in circular economy performance across European regions and countries, both before and after controlling for the macroeconomic context. In the latter variant, the analysis controls for macroeconomic influences on the circular economy indicators in a pre-regression, and the regression residuals represent the conditional circular economy performance.

"The empirical analysis shows a significant correlation between circular economy indicators and key macroeconomic conditions, but we do not find evidence supporting causal relationships from macroeconomic circumstances in the short term. Regional studies reveal disparities in circular economy performance, with Western Europe generally outperforming Southern and Eastern Europe. However, these patterns are more aligned when the macroeconomic context is considered," Holmen explains.

The research article adds to a long list of publications to which Vista Analyse has contributed, both within the waste management and sanitation industry and in panel data econometrics.

"We are pleased to delve into international sustainability issues and combine policy analysis with research insights. It's also rewarding to engage in interesting empirical questions with strong partners," Holmen concludes.

Sources:

Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations. Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968

Dumitrescu, E. I., & Hurlin, C. (2012). Testing for Granger Non-Causality in Heterogeneous Panels. Economic modelling, 29(4), 1450-1460. https://doi.org/10.1016/j.econmod.2012.02.014

Ferrante, L., & Germani, A. R. (2020). Does Circular Economy Play a Key Role in Economic Growth?. Economics Bulletin, 40(3), 1855-1862. https://hdl.handle.net/11573/1430741

Holmen, R. B., Carvelli, G., Razminienė, K., & Tvaronavičienė, M. (2024). Macroeconomic Influences on the Circular Economy: European Waste Management. Circular Economy and Sustainability. Forthcoming. https://doi.org/10.1007/s43615-024-00418-x

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