From fragility to resilience: Human capital-driven circular economy transition amid economic complexity and institutional challenges

Amid mounting ecological challenges presented by traditional linear economic models, the circular economy (CE) has emerged as a promising, sustainable alternative, fundamentally underpinned by human capital (HC). Building on an extensive literature review and the formulation of critical hypotheses, this study introduces a novel, nonlinear framework for transitioning to CE, employing a panel smooth transition regression (PSTR) technique for 29 OECD nations spanning 2000–2023. Focusing on three threshold variables—Institutional Quality Index (IQI), Economic Complexity Index (ECI), and State Fragility Index (SFI)—the nonlinear smooth transition (ST) function reveals an S-shaped curve that modulates the CE-HC nexus, capturing effects such as diminishing returns at lower HC levels and accelerated gains once critical thresholds are surpassed. Under the IQI threshold, the findings reveal an abrupt transition with a high ST ( γ = 26.76 ) and a threshold value ( c = 0.603 ), indicating that incremental improvements in IQI yield marked, nonlinear changes in the CE-HC nexus. The results under the ECI threshold exhibit a moderate transition ( γ = 10.32 , c = 1.667 ), suggesting a progressive evolution of HC’s impact amid rising economic sophistication. Notably, under the SFI threshold, a sharp nonlinear transition is observed ( γ = 44.74 , c = 0.369 ), where surpassing a critical fragility level resembles a structural break in the effect of HC on CE. The impact of control variables—per capita GDP, environmental technologies, fixed capital formation, employment, and population density—varies significantly, being positive under IQI and ECI but negative under the SFI threshold. The findings underscore the importance of nonlinear HC dynamics when designing policy interventions for transitioning to CE under complex and fragile institutional settings.