Circular economy and public policies: A dynamic analysis for European SMEs

Abstract

Previous empirical studies have highlighted the importance of the institutional framework in fostering a transition towards the circular economy (CE). Adopting a dynamic approach, which merges three Flash Eurobarometer surveys conducted in 2015, 2017 and 2021 into a single dataset, we observe the evolution in the factors determining the adoption of CE practices. Firstly, using factor analysis, our results indicate two groups of institutional drivers: knowledge and environmental spillovers. Secondly, applying a multivariate probit model, we observe that both spillovers have a positive effect on the adoption of the CE. Finally, we find that the effect of knowledge spillovers remains relatively constant, while that of environmental spillovers tends to increase. This suggests that firms are increasingly benefiting from the adoption of circular practices by their peers. Policymakers should take into account that a more intense knowledge spillovers and a stronger institutional framework will increase the likelihood of European small- and medium-sized enterprises (SMEs) adopting CE practices.