Macroeconomic Influences on Recycling in Europe: An Econometric Investigation

Abstract While the circular economy has garnered significant attention over the last two decades, few studies have explored the relationship between recycling and macroeconomic conditions. This paper aims to elucidate how macroeconomic factors influence and correlate with recycling indicators, focusing on European waste management. First, we analyze how macroeconomic indicators impact key circular economy indicators related to waste management, considering 27 European countries from 2000 to 2019, categorized into Western, Southern, and Eastern Europe. An ordinary least squares model serves as a baseline for comparison with a fixed effects model and a model with regional and time dummies. As a response to Ferrante and Germani's (2020) call for more research on causal studies of this kind, we also address reverse causality both by testing for panel data Granger causality and by applying the dynamic panel data approach developed by Arellano and Bond (1991). Second, we investigate variations in circular economic performance across European regions and countries, both before and after controlling for the macroeconomic context. The empirical analysis reveals a substantial correlation between circular economy indicators and key macroeconomic conditions, but we do not find evidence supporting causal impacts from macroeconomic circumstances in the short run. Regional examinations unveil disparities in circular economic performance, with Western Europe generally surpassing Southern and Eastern Europe. However, these patterns align more closely when considering the macroeconomic context. The methodologies employed in the study may prove valuable for future research on the circular economy and its relation to macroeconomic influences.