Macroeconomic Determinants of Circular Economy Investments: An ECM Approach

Abstract

The study aims to identify which main macroeconomic determinants affect investment in a circular economy. The main purpose of the investment determinants in a circular economy is to determine how macroeconomic determinants such as real GDP per capita, government expenditure, unemployment, inflation, tax revenue, and interest rate affect an investment in the circular economy in the European Union for the period 2004–2022. Using an error correction model, empirical findings confirmed that government expenditure, inflation, and tax revenue have positive effects on investment in the circular economy in the short run and long run. Conversely, unemployment and interest rate negatively affect investment in the circular economy for both the short term and long term. The contribution of the paper is providing valuable insights into the determinants driving investment in the circular economy, which may help with developing sustainable business policies and practices in the European Union.