Author: Dr. Gariba and colleagues.
Addressing today’s urgent environmental challenges, climate change, resource scarcity, and ecological degradation, requires more than incremental improvements. A fundamental shift toward a circular economy is increasingly viewed as a necessary pathway to sustainable development. While technology is often seen as a key enabler of this transition, surprisingly little is known about the specific conditions under which technological progress actually supports or hinders circular economy outcomes.
This study fills that gap by examining how technological innovation relates to the circular economy across OECD countries. In particular, it highlights the moderating roles of the regulatory environment, human capital, and technological capacity. Grounded in endogenous growth theory, the research seeks to move beyond one-size-fits-all assumptions and instead explore how context shapes the environmental consequences of innovation.
Using annual data from 37 OECD economies covering the period 2000–2022, the analysis is based on 692 country-year observations. A robust empirical strategy is applied, combining panel fixed-effects regression with Driscoll–Kraay standard errors, instrumental variable estimation, and quantile regression. This multi-method approach allows the study to address endogeneity concerns and capture differences across the distribution of circular economy performance.
The instrumental variable results reveal that technological innovation is positively and significantly associated with the circular economy indicator, suggesting a deterioration in circular performance as patenting activity increases. Although a negative and statistically significant quadratic term indicates a concave relationship, the marginal effects remain positive throughout the observed range. In practical terms, this means that while the adverse environmental effects of innovation persist, their intensity declines as technological innovation reaches higher levels.
The findings also underscore the importance of contextual factors. Technological capacity is shown to positively moderate the relationship between innovation and the circular economy, helping to mitigate negative outcomes. In contrast, human capital exerts a negative moderating effect, implying that skills and knowledge alone may not guarantee environmentally beneficial innovation. Meanwhile, strong environmental regulations enhance the positive influence of technological innovation on circular economy outcomes.
Importantly, results vary across fixed-effects and quantile regression models, highlighting the context-specific nature of the innovation–circular economy nexus. These insights contribute to theory by clarifying how technological progress interacts with institutional and structural factors. For policymakers and businesses, the implications are clear: effective circular economy strategies require targeted funding for sustainable technologies, careful monitoring of innovation pathways, and a supportive regulatory framework that encourages circular practices while reducing unnecessary bureaucratic obstacles.
Read the full article here to explore the detailed findings and their implications for both policymakers and practitioners.