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<p>The importance of financial development is widely recognized due to its positive impacts on the investment, innovation, poverty reduction, entrepreneurship and sustainable economic performance. Similarly, an efficient circular economy brings multiple benefits including the conservation of environment, waste management and ensuring sustainability. However, the true influence of efficient financial development on the transition towards the circular economy particularly in the presence of efficient institutional system is yet to be explored as far as the empirical literature is concerned. Accordingly, this research paper focuses on exploring the impact of financial development on the development of circular economy while considering the important moderating role of institutional quality. The paper focuses on a sample of 30 selected European Economies and utilizes data from 2006–2023 and applies a battery of econometric techniques. The results endorsed that financial development is not conducive for the development of circular economy as it is positively associated with the municipality waste generation consistently. Quantitatively, it is found that 1% rise in financial development leads to 0.09% increase in waste generation, kg per capita. However, the interactive term of financial development and institutional quality is negative and statistically significant, suggesting that improved institutional quality moderates the relationship between financial development and circular economy. Moreover, the results demonstrated that improved human capital is the main driving force behind the development of circular economy. Empirically, it is found that 1% increase in human capital will decrease waste generation, kg per capita by—0.19%. The results regarding material flows shows that 1% rise in material flows will leads to 0.137% increase in waste generation, kg per capita. Similarly, the results demonstrated that 1% increase in recycling rate leads to 0.04% increase in waste generation, kg per capita. Finally, the study found that improved institutional quality is conducive for the development circular economy both directly as well as indirectly through its moderating role. The results carry significant policy implications for the sampled economies.</p>

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Institutional quality, financial development, and the circular economy in Europe

  • 期刊论文

  • 出版模式：

    开放获取

  • 发表日期：

    2026年8月2日

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  • Othman Altwijry,
  • Mohammad Jaboob,
  • Muhammad Tahir

摘要

The importance of financial development is widely recognized due to its positive impacts on the investment, innovation, poverty reduction, entrepreneurship and sustainable economic performance. Similarly, an efficient circular economy brings multiple benefits including the conservation of environment, waste management and ensuring sustainability. However, the true influence of efficient financial development on the transition towards the circular economy particularly in the presence of efficient institutional system is yet to be explored as far as the empirical literature is concerned. Accordingly, this research paper focuses on exploring the impact of financial development on the development of circular economy while considering the important moderating role of institutional quality. The paper focuses on a sample of 30 selected European Economies and utilizes data from 2006–2023 and applies a battery of econometric techniques. The results endorsed that financial development is not conducive for the development of circular economy as it is positively associated with the municipality waste generation consistently. Quantitatively, it is found that 1% rise in financial development leads to 0.09% increase in waste generation, kg per capita. However, the interactive term of financial development and institutional quality is negative and statistically significant, suggesting that improved institutional quality moderates the relationship between financial development and circular economy. Moreover, the results demonstrated that improved human capital is the main driving force behind the development of circular economy. Empirically, it is found that 1% increase in human capital will decrease waste generation, kg per capita by—0.19%. The results regarding material flows shows that 1% rise in material flows will leads to 0.137% increase in waste generation, kg per capita. Similarly, the results demonstrated that 1% increase in recycling rate leads to 0.04% increase in waste generation, kg per capita. Finally, the study found that improved institutional quality is conducive for the development circular economy both directly as well as indirectly through its moderating role. The results carry significant policy implications for the sampled economies.