Circular economy, resource management, and policy drivers of environmental performance: evidence from EU-22

This study addresses the critical need to understand the multifaceted influences on environmental sustainability, focusing on circular economy (CE) practices, sustainable resource management (SRM), environmental taxes, human capital development, and trade freedom within EU-22 nations. Transitioning to a circular economy represents a shift from linear, wasteful production-consumption systems to more sustainable, resource-efficient processes, which is vital for addressing global environmental challenges. The study employs advanced econometric techniques, specifically Smoothed Common Correlated Effects Instrumental Variable Quantile Regression (CCE-IVQR) and Instrumental Variable Quantile Regression (IV-QR), to analyse panel data from 2004 to 2022. This methodological approach effectively captures distributional heterogeneity and addresses potential endogeneity, offering nuanced insights into different levels of environmental performance. The findings reveal that recycling and resource efficiency consistently enhance environmental performance, particularly in lower- and mid-performing EU nations, whereas the impacts of remanufacturing vary by context. SRM, particularly improvements in water and energy use efficiency, positively influenced sustainability outcomes, albeit unevenly across quantiles. Environmental taxes exhibited robust positive contributions to sustainability, with stronger effects at lower performance levels. Human capital, especially through education expenditure, is universally associated with positive environmental outcomes. Trade freedom significantly facilitates the diffusion of clean technologies and market integration, predominantly benefiting higher-performing economies. This study underscores the heterogeneous yet predominantly positive roles of CE and SRM practices in environmental sustainability across the EU-22.