Towards Circular Economy: Unveiling Heterogeneous Effects of Government Policy Stringency, Environmentally Related Innovation, and Human Capital within OECD Countries

Abstract

With reference to the existing literature, this paper investigates the heterogenous effect on the attainment of circular economy by government policies in the form of government stringency and government financial support, environmentally related innovations, and human capital. The study was carried out in 26 countries of the OECD from 2010–2019 using the Poisson pseudo-maximum likelihood (PPML) model and data from Eurostat and OECD datasets. Indicators for the independent variables were non-market-based stringency, market-based subsidy, gross domestic expenditure on R&D by source of funds, R&D expenditure intramural, national expenditure on environmental protection environmental protection, environmentally related patents with co-inventors, and employees involved in education and training. The results revealed that a significant effect of government stringency in the form of non-market-based stringency, environmental innovation, government financing on R&D, and national expenditure on environmental protection have significant impact on the attainment of circular economy within OECD countries. Surprisingly, there was no significant effect of the market-based subsidy on domestic material consumption (dmc). We conclude that a blend of government policies is the effective means of achieving a circular economy.