




































AGORA International Journal of Economical Sciences, http://univagora.ro/jour/index.php/aijes 

ISSN 2067-3310, E-ISSN 2067-7669 

Vol. 19, No. 1 (2025), pp. 67-76 

 

67 

 

THE IMPACT OF PRIVATE INVESTMENT IN THE CIRCULAR 

ECONOMY ON EU GDP 

 

A. CENAJ, S. HAXHIMUSTAFA 

 

Aulonë Cenaj 1, Shenaj Haxhimustafa 2 

¹ ² Faculty of Business and Economics, South East European University, North Macedonia 

¹ https://orcid.org/0009-0008-8758-4710 E-mail: ac32332@seeu.edu.mk  

² https://orcid.org/0000-0003-4391-3822 E-mail: s.daut@seeu.edu.mk 

 

Abstract: The main purpose of this research is to analyze the Impact of Private 

Investments in the Circular Economy on EU GDP for the period 2010-2020. This research has 

a sample of 28 EU Member States and analyzes a 10-year period. The scientific methodology 

applied in this study is the quantitative method. The data used in this research are secondary 

and are generated from official data published by Eurostat and the World Bank. Based on the 

results of this research, we may conclude that there is a negative relationship between private 

investments in the Circular Economy and the GDP of the European Union countries for the 

period 2010-2020. During the period 2010-2020, some EU countries experienced problems in 

attracting private investments due to difficult economic and political conditions, they had 

influenced private investments to have a negative effect on GDP.     

Keywords: Circular Economy, GDP, Private Investments. 

 

1. INTRODUCTION 

This research will discuss the impact of private investments in the circular economy on 

the GDP of the European Union countries for the period 2010-2020. The main variables of this 

research are: Gross Domestic Product (GDP), Private Investments and Gross Value Added of 

the Circular Economy (IPEC), Persons Employed in the Circular Economy Sectors (PPEC), 

Final Consumption Expenditure (SHKF), and Inflation (INFL).  

The inclusion of all EU Member Countries will make the research even more qualitative 

because it will present a real overview of the impact of these circular economy indicators on 

the GDP of all EU countries. The indicator of private and gross added values in the circular 

economy is an indicator that is used to monitor the progress of the economy in the field of 

competition and innovation. Through these indicators, the circular economy contributes 

significantly to economic expansion and the creation of new jobs. 

The circular economy may make a significant contribution to the creation of new places 

of jobs and economic growth. Eurostat, on an annual basis, gathers information on the number 

of employees in the circular economy. This indicator determines if the shift from the traditional 

economy to the circular economy is producing the desired results by examining the growth of 

other sectors and the creation of new jobs. 

On the other hand, the improvements in the productivity of the material as well as the 

efficiency of the use of the material, are otherwise known as the productivity of the resources. 

https://orcid.org/0009-0008-8758-4710
mailto:ac32332@seeu.edu.mk
https://orcid.org/0000-0003-4391-3822
mailto:s.daut@seeu.edu.mk


Aulonë CENAJ, Shenaj HAXHIMUSTAFA 

68 

 

According to Eurostat, productivity growth in recent years has been significantly slower than 

that of labor and energy productivity. 

The key conclusions indicate that while investment plays a crucial role in enhancing 

resource efficiency, the combination of innovation and investment significantly contributes to 

the reduction of environmental degradation (Lehmann, Cruz-Jesus, Oliveira, & Damásio, 

2022). The purpose of this article is to understand the significance of the impact of private 

investment in the circular economy on the GDP of EU countries, considering the importance 

of the transition from a linear economy to a circular one, where resources are not discarded but 

reused. This research also aims to provide recommendations for policymakers in order to create 

a more favorable environment for private investment in the circular economy. 

 

2. LITERATURE REVIEW  

The research conducted by Hondroyiannis et al. (2024) analyzes the relationship 

between a macro-level Turnover Rate and various macroeconomic variables in a sample of 28 

European countries using panel data. The findings suggest a strong positive relationship 

between real GDP and the turnover rate in the long run, while higher environmental taxes are 

associated with an increase in the turnover rate.  

According to Hysa et al. (2020), developed economies are innovating to spur growth 

and are providing government support to manufacturers in order to transition from linear to 

circular economies. As a result, waste materials in industrial systems are being recycled or 

reused, improving the efficiency of resource use through a zero-waste approach. The results of 

both econometric models showed a strong and positive correlation between the circular 

economy and economic growth, emphasizing the crucial role of sustainability and innovation. 

According to Kaivo-Oja, Vehmas, and Luukkanen (2022), a well-functioning circular 

economy brings benefits to businesses, people, and the environment. It is described as a 

systems-based solutions framework designed to tackle global challenges such as climate 

change, biodiversity loss, waste, and pollution. A key finding of their research is that, within 

the European Union, the levels of synergy between economic indicators, such as GDP and 

GNI, and core variables of the circular economy do not consistently align and may differ 

significantly from one another. 

According to Brussels et al. (2022), the impact assessment was conducted using a 

computable general equilibrium (CGE) model, as this approach allows for the quantification 

of both direct and indirect economic and environmental impacts of the simulated shocks. The 

results indicate that different types of fiscal policies can guide an economy toward a more 

circular model. 

Research carried out by Robaina, Villar, and Pereira (2020) contrasts the circular 

economy with the traditional linear economy, emphasizing its potential as a sustainable model 

for producing goods and services and fostering economic development. With this aim, a series 

of determinants for a circular economy in Europe were analyzed for the period between 2000 

and 2016. A cluster analysis was implemented and complemented by three econometric 

evaluation methods: panel unit root tests, panel co-integration, and a vector autoregression 

model. The main findings allowed European countries to be grouped into three distinct clusters 

based on the growth rate of their resource productivity and the explanatory factors selected. 



THE IMPACT OF PRIVATE INVESTMENT IN THE CIRCULAR ECONOMY ON EU GDP 

69 

 

According to Hysa et al (2020), industrialized economies are leveraging innovation to 

stimulate economic growth while also providing governmental support to manufacturers 

transitioning from linear to circular economic models. As a result, waste products within 

industrial systems are increasingly being recycled or repurposed, enhancing the efficiency of 

zero-waste strategies and the sustainable use of limited resources. The results of both 

econometric models used in their study demonstrated a strong and positive relationship 

between circular economy practices and economic growth, highlighting the essential role of 

sustainability, innovation, and investment in zero-waste programs in promoting overall 

prosperity. 

The study carried out by Lehmann et al. (2022) used data from Eurostat and the United 

Nations, spanning 28 European nations from 2011 to 2017, to determine the two primary 

aspects of the circular economy, which are resource efficiency and environmental degradation. 

Additionally, using dynamic panel models, an analysis is conducted to compare the effects of 

investment, human capital, innovation, and past turnover levels on each identified feature of 

the circular economy. The results demonstrated that, as the investment by itself has a 

substantial role in enhancing resource efficiency, innovation, and investment together greatly 

minimize environmental degradation, whereas only the investment is also important in the 

promotion of resource efficiency. 

The research carried out by Nedelea et al. (2018) conducted an empirical study between 

2008 and 2015 using cross-sectional analysis applied to the interrelationships between data 

concerning the EU-28 member countries. The study's focus is on the effect of the bio-economy 

on economic growth. In the framework of the bio-economy, three econometric models based 

on ordinary least squares regression are created to emphasize the connections between 

economic growth, the circular economy, and intellectual capital. The circular economy's added 

value is positively correlated with the export of recyclable raw materials, employment within 

the sector, and the rate at which municipal garbage is recycled. 

On the other hand, the research carried out by Bianchi and Cordella (2023) suggests 

that, while encouraging a shift toward more circular economic systems can contribute to 

reducing the extraction of primary resources, the overall effect of such initiatives remains 

relatively limited. Their estimates show that the amount of primary resources extracted 

annually due to economic growth is approximately four times greater than the amount saved 

through circular economy (CE) initiatives. 

 

3. METHODOLOGY 

The primary goal of this research is to examine how private investments and the circular 

economy's gross added value affect the GDP of EU member states between 2010 and 2020. 

Thus, this study demonstrates the effects of private investments and the circular economy's 

gross added value on the GDP of the 28 EU member states. Inclusion of all EU member states, 

the research will be even more qualitative as it will give a true picture of how these circular 

economy metrics affect each nation's GDP.  

The main variables of this research are: Gross Domestic Product (GDP), Private 

Investments and Gross Value Added of the Circular Economy (IPEC), Persons Employed in 



Aulonë CENAJ, Shenaj HAXHIMUSTAFA 

70 

 

the Circular Economy Sectors (PPEC), Final Consumption Expenditure (SHKF), and Inflation 

(INFL). 

The scientific methodology that has been applied in this study is the quantitative 

method, applying the deductive approach, which uses the existing theory to prove the 

hypotheses and draw conclusions. The data that will be used in the research are secondary data 

and will be generated from official data published by Eurostat and the World Bank. These data 

are mainly annual data presented also in the form of time series expressed in percentages. The 

results of this study will be analyzed through the Stata program. The research questions of this 

study are: 

1. How does the change in private investments and gross added values of the circular 

economy affect the growth of the GDP of the European Union countries for the period 

2010-2020? 

2. How does the change in the number of employees in the circular economy affect the 

GDP of the European Union countries for the period 2010-2020? 

3. What is the relationship between inflation, final consumption expenditure, resource 

productivity, and GDP for the countries of the European Union for the period 2010-

2020? 

The timeframe 2010-2020 was chosen for this study because it encompasses a complete 

decade and provides for a thorough examination of patterns and implications of private 

investments in the circular economy across European Union countries. This timeline 

encompasses the post-global financial crisis recovery phase, an increased policy emphasis on 

sustainable development, and significant progress in circular economy projects. Data 

availability and trustworthiness are also important factors in this decision, as official statistics 

and economic indicators for this time are comprehensive and consistent across countries. 

Although extending the period to 2025 would provide more recent insights, data for years after 

2020 are sometimes tentative or unavailable at the time of the study, thereby affecting the 

robustness and comparability of conclusions. As a result, focusing on 2010-2020 assures that 

the research has a solid empirical foundation and that the policy implications are based on 

finished and validated facts. 

The main hypothesis of this research is:  

H1 - Private investments and gross added values in the Circular Economy affect the GDP of 

the European Union countries. 

 

Table 1: Description of variables included in econometric models  

Variables  Variable review Date of source 

Dependent 

Variable (Y) 

Gross Domestic 

Product (GDP) 

Annual reports of the World Bank, time series (2010-2020) 

(https://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG, 2024)  

Independent 

Variable (X1) 

Private 

Investments and 

Gross Value 

Added in the 

Circular 

Economy (IPEC) 

Eurostat annual reports on circular economy indicators, time series 

(2010-2020) 

(https://ec.europa.eu/eurostat/web/circular-economy/database, 2024)  

Independent 

Variable (X2) 

Persons 

employed in the 

Eurostat annual reports on circular economy indicators, time series 

(2010-2020) 



THE IMPACT OF PRIVATE INVESTMENT IN THE CIRCULAR ECONOMY ON EU GDP 

71 

 

Circular 

Economy sectors 

(PPEC) 

(https://ec.europa.eu/eurostat/web/circular-economy/database, 2024)  

Independent 

Variable (X3) 

Final 

Consumption 

Expenditure 

(FCF) 

Annual reports of the World Bank, time series (2010-2020) 

(https://data.worldbank.org/indicator/NE.CON.TOTL.KD.ZG, 2024) 

Independent 

Variable (X4) 

Inflation (INFL) Annual reports of the World Bank, time series (2010-2020) 

(https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG , 2024) 

 

Independent 

Variable (X5) 

Productivity of 

resources in the 

circular 

economy 

Eurostat annual reports on circular economy indicators, time series 

(2010-2020) 

(https://ec.europa.eu/eurostat/web/circular-economy/database, 2024) 

Source: Data processing by authors (2024) 

To test the hypotheses of this study, the econometric model must be built to prove these 

hypotheses. This econometric model will look like the following: 

GDP = β0 + β1IPEC + β2PPECit + β3INFLit + β4SKF + β5Prod.Resit + γit 

Where: 

GDP - Gross Domestic Product 

IPEC - Private Investments and Gross Value Added in the Circular Economy 

PPEC - Persons employed in the Circular Economy sectors 

INFL - Inflation 

SHKF - Final Consumption Expenditures 

Prod, Res - Resource Productivity 

Stochastic variables (other factors not considered in the model), I-code, and t–time period 

 

4. RESULTS OF THE ECONOMETRIC MODEL 

In this section, the results of descriptive analysis, correlation analysis, and the 

hypotheses of this study will be tested to test the research questions. The data used in this study 

are secondary data processed in the STATA program and are presented within the panel data. 

These data are obtained from the World Bank and Eurostat databases. The time period along 

which this study extends is the period 2010-2020. Here, the results of descriptive statistics, 

correlation analysis, and hypothesis testing will be analyzed. 

This testing will be done using standard multiple regression analysis, fixed effect 

model, random effect model, Hausman Taylor Estimation, GMM Model, Arellano Bond 

Estimation, and GEE model. 

 

Table 2: Descriptive statistics for the variables included in the study  

Variable Obs Mean Std. Dev. Min Max 

      

IPEC 307 .670684 .3352697 .1 1.7 

PPEC 307 1.787296 .5853898 .4 3.6 



Aulonë CENAJ, Shenaj HAXHIMUSTAFA 

72 

 

INFL 308 1.415045 1.416978 2.09 6.09 

SKF 308 1.063534 2.828701 -12 10.1 

Prod. Res 307 1.792713 1.162285 0.29 4.5 

MNE 306 1.513337 3.546917 11.16 24.4 

Source: Author’s own calculations using STATA (2024) 

 

From the descriptive statistics, we can see that the research has 307 observations. The 

IPEC variable has a mean of 0.67, a minimum value of 0.1, and a maximum value of 1.7. 

The PPEC variable has an average of 1.78, a minimum value of 0.4, and a maximum 

value of 3.6. Whereas INFL has an average of 1.41, a minimum value of -2.09, and a maximum 

value of 6.09. 

The SHKF variable has 308 observations; an average of 1.06, a minimum value of -12, 

and a maximum value of 10.1, so the standard deviation is quite high. Prod. Res has an average 

value of 1.79, a minimum value of 0.29, and a maximum value of 4.5. 

The GDP variable has 306 observations, an average of 1.51, a minimum value of -

11.16, and a maximum value of 24.4. 

 

Figure 1. A graphic representation of GDP, PPEC, and IPEC 

 
Source: Author’s own calculations using STATA (2024) 

 

From the graphical presentation of the histogram, we can see that between GDP as a 

dependent variable and private investments and gross added values of the Circular Economy, 

as well as persons employed in the Circular Economy as independent variables, a normal 

distribution exists. 

 

5. EMPIRICAL SUMMARY OF ECONOMETRIC MODEL RESULTS 

The following section presents and interprets the summarized results of the econometric model. 

 



THE IMPACT OF PRIVATE INVESTMENT IN THE CIRCULAR ECONOMY ON EU GDP 

73 

 

Table 3. Summary of empirical results from the econometric model 

Variables Linear 

Regression 

Random 

Effects 

Generalized 

Least Squares 

(GLS) 

Regression 

Fixed Effects 

Regression 

Haussmann 

Taylor 

Regression 

GEE Model GMM 

Model 

MNE - - - - - - 

IPEC -1.112109 

(0.009) *** 

-1.2 

(0.02) ** 

-1.604146 

(0.063) * 

-1.839911 

(0.019) ** 

-1.280126 

(0.021) ** 

-.5413688 

(0.638) 

PPEC -.1421379 

(0.546) 

-.0843017 

(0.805) 

.0202363 

(0.979) 

.3863939 

(0.588) 

-.0828484 

(0.808) 

1.876413 

(0.100) * 

INFL .1694437 

(0.06) * 

.2166044 

(0.015) ** 

.2625833 

(0.005) ** 

0.2421285 

(0.007) *** 

.2171025 

(0.014) ** 

.2650805 

(0.012) ** 

SKF .9977681 

(0.000) ** 

.985045 

(0.000) *** 

.9792111 

(0.000) ** 

0.9876457 

(0.000) *** 

.9849271 

(0.000)*** 

1.034553 

(0.000) 

*** 

Prod. Res .2939534 

(0.02) ** 

.3481249 

(0.06) * 

1.134713 

(0.01) * 

0.5240353 

(0.038) ** 

.3495123 

(0.060) * 

.4058518 

(0.685) 

R Square 0.5989      

Adj. R 2 0.5922      

Source: Author’s own calculations using STATA (2024) 

*significance level 10% 

** significance level 5% 

*** 1% significance level 

 

Based on the results of the standard multiple regression analysis and the equation of 

regression, we understand that all the variables of this study are significant at a reliability level 

of 10%, except for the variable of Persons Employed in the Circular Economy, which exceeds 

the allowed significance. The coefficient of correlation between dependent and independent 

variables is 59.89%. So there is an average correlation or connection between the variables of 

this study. The coefficient of determination between the independent and dependent variables 

is on average high in value, 59.22%, so for 59.22%, the independent variables explain the 

dependent variable. These results prove that this model is statistically sustainable. 

β0 - whether all factors ARE constant, then the value of GDP is 0.68. 

β1IPEC - If Private Investments in the Circular Economy increase by one unit while 

keeping other factors constant, then GDP will decrease by 1.11 units. This finding is real 

because the level of significance IS 0.009 < 0.05. 

β2PPEC - if the number of Employed Persons in the Circular Economy per unit 

increases, keeping the other factors constant, then the GDP will decrease by 0.14 units. This 

statement is not true because the significance level exceeds the 10% significance level, i.e., 

0.54 > 0.05 

β3INFL - if inflation increases by one unit, keeping it constant with other factors, then 

the GDP will increase by 0.16 units. This statement is true at a significance level of 10%, thus 

0.06 < 0.10. 



Aulonë CENAJ, Shenaj HAXHIMUSTAFA 

74 

 

β4SHKF - If final Consumption Expenditure increases by one unit while keeping other 

factors constant, then GDP will grow by 0.9 units. This finding is real because the level of 

significance is 0.000 < 0.05. 

β5Prod.Res - if the Productivity of resources increases by one unit while keeping other 

factors constant, then GDP will grow by about 0.29 units. This finding is because the level of 

significance is 0.02 < 0.05. 

Therefore, it can be concluded that all independent variables are significant and 

statistically significant and prove the validity of the hypotheses of this study, with the exception 

of the variable of employed Persons in the Circular Economy, which is not significant at the 

10% confidence level. 

Based on the generated results, we can conclude that there is a positive relationship 

between Inflation, final consumption expenditures, and GDP. 

The main hypotheses of this research are: 

H1 - Private investments and gross added values in the Circular Economy affect the 

GDP of European Union countries. 

Based on the results, we can conclude that private investments and gross added values 

of the Circular Economy affect the GDP of the European Union countries for the period 2010-

2020.  

 

6. DISCUSSIONS/CONCLUSIONS 

The literature research shows that the shift to a circular economy can have a brief 

negative impact on economic growth and GDP, particularly during the transition phase. 

However, all studies underline that this can have long-term benefits for economic growth and 

sustainable development if implemented carefully and with the assistance of suitable 

regulations. 

In the study conducted by Kirchherr et al. (2018), the barriers of the circular economy 

in the EU were examined with 208 respondents and 47 expert interviews. The study finds that 

cultural barriers, especially a lack of consumer interest and awareness, as well as a reluctant 

company culture, are considered the main barriers to the circular economy by businesses and 

policymakers. These are driven by market barriers, which, in turn, are caused by the lack of 

synergistic government interventions to accelerate the transition to a circular economy. The 

study highlights that while the circular economy can bring long-term benefits, implementation 

can cause economic growth to slow down in the initial stages. 

Despite the circular economy focusing on redesigning processes and recycling 

materials, providing opportunities for more sustainable business models, this article has also 

identified several tensions and limitations. These include the lack of the social dimension of 

sustainable development, which limits ethical impacts, as well as unforeseen consequences. 

The study concluded that the circular economy can contribute to economic growth, but this 

requires a period of transition and adaptation to achieve positive results (Murray, A., Skene, 

K., & Haynes, K., 2017). 

Another study examines the macroeconomic consequences of moving to a circular 

economy. This research suggests that the impact on GDP may vary in the short and long term 

and highlights the need for supportive policies to aid this transition, supporting our conclusions 



THE IMPACT OF PRIVATE INVESTMENT IN THE CIRCULAR ECONOMY ON EU GDP 

75 

 

on the negative impact of private investment in the circular economy on GDP, especially during 

the transition period (McCarthy, A., Dellink, R., & Bibas, R., 2018). 

Based on the statistical data obtained by Stata calculations and the fixed effect, we can 

conclude that changes in private investments and gross added values of the circular economy 

hurt the GDP of European Union countries between 2010 and 2020. In the period 2010-2020, 

some EU countries experienced problems in attracting private investments due to difficult 

economic and political conditions, which influenced private investments to have a negative 

effect on GDP. In countries that fail to create a favorable environment for private investment, 

GDP growth may be halted or limited. In cases where private investment is limited or 

negatively affects investor confidence due to factors such as political instability, lack of legal 

certainty, or insufficient market conditions, it can have a negative impact on economic growth. 

One of the most important practical implications of this study is the need to improve 

the private investment climate in the circular economy and comprehend the necessity to migrate 

to a circular economy. 

To ensure that private investment has a positive impact on European Union countries, 

the EU needs to improve the investment climate to make private investment more attractive. 

This can be achieved by improving fiscal and financial policies, providing lower-interest loans 

to investors, adjusting taxes and fees reasonably, as well as creating a more conducive 

environment for doing business. Furthermore, free and fair competition should be promoted, 

and more investment should be made in infrastructure and energy to support sustainable 

development. 

 

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1. Bianchi, M., & Cordella, M. (2023). Does circular economy mitigate the extraction of 

natural resources? Empirical evidence based on analysis of 28 European economies over the 

past decade. Ecological Economics, 203, 107607.  

2. Brusselaers, J., Breemersch, K., Geerken, T., Christis, M., Lahcen, B., & Dams, Y. . (2022). 

Macroeconomic and environmental consequences of circular economy measures in a. 

3. Hondroyiannis, G., Sardianou, E., Nikou, V., Evangelinos, K., & Nikolaou, I. (2024). 

Circular economy and macroeconomic performance: Evidence across 28 European 

countries. Ecological Economics, 215, 108002.  

4. https://data.worldbank.org/indicator/FP.CPI.TOTL.ZG . (Mars 2024). Pridobljeno iz 

Banka Boterore. 

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