Circular business activities and economic performance optimization in EU countries: towards consumption footprint management

Adewumi, Olugbenga Michael; Echebiri, Chukwuemeka; Alola, Andrew Adewale Article Circular business activities and economic performance optimization in EU countries: towards consumption footprint management Cogent Economics & Finance Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Adewumi, Olugbenga Michael; Echebiri, Chukwuemeka; Alola, Andrew Adewale (2024) : Circular business activities and economic performance optimization in EU countries: towards consumption footprint management, Cogent Economics & Finance, ISSN 2332-2039, Taylor & Francis, Abingdon, Vol. 12, Iss. 1, pp. 1-19, https://doi.org/10.1080/23322039.2024.2394491 This Version is available at: https://hdl.handle.net/10419/321578 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Economics & Finance ISSN: 2332-2039 (Online) Journal homepage: www.tandfonline.com/journals/oaef20 Circular business activities and economic performance optimization in EU countries: towards consumption footprint management Olugbenga Michael Adewumi, Chukwuemeka Echebiri & Andrew Adewale Alola To cite this article: Olugbenga Michael Adewumi, Chukwuemeka Echebiri & Andrew Adewale Alola (2024) Circular business activities and economic performance optimization in EU countries: towards consumption footprint management, Cogent Economics & Finance, 12:1, 2394491, DOI: 10.1080/23322039.2024.2394491 To link to this article: https://doi.org/10.1080/23322039.2024.2394491 © 2024 Inland Norway University of Applied Sciences. Published by Informa UK Limited, trading as Taylor & Francis Group View supplementary material Published online: 24 Aug 2024. Submit your article to this journal Article views: 761 View related articles View Crossmark data Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oaef20 ENVIRONMENTAL ECONOMICS & SUSTAINABILITY | RESEARCH ARTICLE Circular business activities and economic performance optimization in EU countries: towards consumption footprint management Olugbenga Michael Adewumi , Chukwuemeka Echebiri and Andrew Adewale Alola Inland Norway University of Applied Sciences, Lillehammer, Norway ABSTRACT As circular business activity is a pivotal component of the European Green Deal, this study examines its impact on economic prosperity by examining how the model influences income levels. The investigation spans a panel of 27 European Union (EU) member countries from 2014 to 2023, factoring in the income effect of consumption footprint and public trust in governing institutions. Based on the system Generalized Method of Moments (GMM) estimators of the dynamic panel model, the results reveal that circular business activities enhance economic well-being. However, the interaction effect of consumption footprint limits the full potential of this enhancing effect. Moreover, as public confidence in government institutions improves, so does economic well-being. This perspective underscores the pivotal role of trust in bolstering the economic benefits of circular business activities, leading to more robust societal conditions. Overall, the study suggests that while circular business activities can improve economic well-being, efficient management of the consumption footprint is crucial for optimization. Its policy implication emphasizes balancing economic aspects with social, institutional, and environmental elements to enhance individual wellbeing. Thus, the findings contribute to the literature and provide valuable policy insights into circular economy models, opening up avenues for future consideration. IMPACT STATEMENT This study highlights the significant role of circular business activities in enhancing economic prosperity within the framework of the European Green Deal. By analyzing data from 27 EU member countries between 2014 and 2023, the research demonstrates that while circular business practices positively impact economic well-being, their full potential is constrained by the interaction effect of consumption footprint. Additionally, it finds that increased public trust in government institutions further amplifies the economic benefits of circular activities. The study underscores the importance of managing consumption footprints and fostering institutional trust to optimize circular economy models’economic and societal advantages. These insights offer valuable policy implications, emphasizing the need to integrate various factors to improve overall well-being. ARTICLE HISTORY Received 27 May 2024 Revised 31 July 2024 Accepted 14 August 2024 KEYWORDS Circular economy; economic well-being optimization; public confidence; consumption footprint; EU SUBJECTS Environment & Economics; Statistics for Business, Finance & Economics; Labour Economics; Development Economics 1. Introduction The European Union’s (EU’s) introduction of environmental protection is one of the foremost principles, and this idea has been merged into its policies for achieving environmental sustainability. One of the drivers of this shift is the realization that the consumption patterns of goods and services negatively influence the global environment (European Commission, 2020). An attempt, among others, to achieve the EU’s environmental objectives and targets is to mitigate the adverse environmental impacts of goods and services relative to consumption footprint (Sany e-Mengual & Sala, 2023). In this regard, the EU has launched the European Green Deal (EGD), a strategic initiative to transform Europe into the first CONTACT Olugbenga Michael Adewumi olugbenga.ad[email protected] Inland Norway University of Applied Sciences, Lillehammer, Norway This article was originally published with errors, which have now been corrected in the online version. Please see Correction (http://dx.doi. org/10.1080/23322039.2024.2398308) Supplemental data for this article can be accessed online at https://doi.org/10.1080/23322039.2024.2394491. ß2024 Inland Norway University of Applied Sciences. Published by Informa UK Limited, trading as Taylor & Francis Group This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent. COGENT ECONOMICS & FINANCE 2024, VOL. 12, NO. 1, 2394491 https://doi.org/10.1080/23322039.2024.2394491 climate-neutral continent. The EGD sets ambitious targets to tackle climate change, environmental degradation, and resource efficiency, all while ensuring economic competitiveness. This initiative is in line with the urgent need to address environmental crises (IPCC, 2023) to trigger a shift towards sustainable economic paradigms. In order to realize this, resource efficiency must be enhanced, and economic growth and societal well-being must be decoupled from environmental impacts (European Commission, 2011; Sala et al., 2014). In this connection, the Circular Economy (CE) model has been widely discussed and considered a potential solution (European Commission, 2020; Hopkinson et al., 2020). The CE is a regenerative system that aims to eliminate waste and restore nature. It operates based on three design principles: the eradication of waste and pollution, the circulation of products and materials at their maximum utility, and the reinforcement of natural systems (Ellen MacArthur Foundation, 2020). The evolution of this concept has been significantly influenced by the escalating concerns about environmental degradation, resource scarcity, and climate change (Stahel, 2016). Specifically, the CE strongly emphasizes resource regeneration, waste reduction, and promoting sustainable consumption and production patterns, revolutionizing traditional linear economic processes (Ellen MacArthur Foundation, 2013,2020). By optimizing resource use and minimizing waste, numerous authors have demonstrated that circular business practices can stimulate economic growth while addressing environmental challenges (Donaghy, 2022; Ellen MacArthur Foundation, 2020; Kirchherr et al., 2017a; Winans et al., 2017). However, the CE or circular business activities, as preferred in the current study, face the environmental repercussions of an average EU citizen’s consumption habits (consumption footprint), which exceed the sustainable limits for human existence in several impact areas (Sany e-Mengual & Sala, 2023). The concept of the consumption footprint, a comprehensive framework of 16 indicators rooted in Life Cycle Assessment (LCA), was developed to quantify the environmental impacts associated with the consumption habits of an average EU citizen. The environmental impacts include those occurring within the EU territory and those embedded in the import and export activities (Sany e-Mengual & Sala, 2023,p. 13). This framework encompasses five key areas: food, mobility, housing, household goods, and appliances (Sala & Sany e Mengual, 2022). Daily activities such as eating and driving contribute significantly to the EU consumption footprint. In this context, food consumption is the most impactful, accounting for an 18% increase in the consumption footprint. Findings suggest that this increase is primarily driven by the environmental toll of agricultural production (Sany e-Mengual & Sala, 2023, p. 20). Probing deeper into the impact of food consumption, it becomes evident that the rise in meat and dairy intake plays a significant role. Accordingly, there has been a marked increase in the consumption of certain foods like cheese, quinoa, tofu, and avocados, reflecting shifts in dietary preferences. Conversely, chickpeas, tuna, and olive oil consumption has significantly declined (Sany e-Mengual & Sala, 2023, p. 31). The increasing consumption footprint indicates increased municipal solid waste (MSW) generation, causing significant environmental concern. Consequently, effectively managing this escalating volume of waste presents a substantial challenge. In perspective, the global generation of MSW was 2.01 10 9 tons in 2016 and is projected to escalate to 3.40 10 9 tons by 2050 (Kaza et al., 2018). Despite these figures, there are concerns that the infrastructure for managing this MSW within the CE framework is insufficient, leading to environmental issues such as pollution and health risks. For instance, the United Kingdom faces a shortage of CE infrastructure, which is necessary for reducing resource use and enhancing recycling (Peake & Brandmayr, 2019). While a significant portion of the MSW in the EU is either recycled or recovered, the achievement of recycling and recovery targets varies (EU average ¼47%). From this context, a substantial amount of waste (>80%), which could potentially generate economic benefits, is still being disposed of in landfills in some EU countries (Eurostat, 2019). This situation calls for improved waste management strategies and policies to ensure environmental sustainability and public health. It also underscores the importance of promoting waste reduction practices and enhancing recycling and recovery efforts. Thus, addressing this issue is crucial in pursuing a more sustainable and waste-free society. In this regard, Marino and Pariso (2020) highlight that additional efforts are needed within the EU member states to surmount the challenges associated with the transition to the CE. This reasoning aligns with other studies showing that effective CE adoption can produce sustainable environmental performance (Dey et al., 2022; Fan et al., 2021; Mawutor et al., 2023) and economic gains (Sany eMengual & Sala, 2023). 2 O. M. ADEWUMI ET AL. However, previous research indicates that while CE has economic significance (Donaghy, 2022; Ellen MacArthur Foundation, 2020; Kirchherr et al., 2017a; Sany e-Mengual & Sala, 2023), its value addition is limited by the consumption footprint (Camacho-Otero et al., 2018; Kirchherr et al., 2017b). Therefore, a desirable trend regarding optimality is to separate the environmental impacts of consumption footprint from the corresponding economic output (Sany e-Mengual et al., 2019). This view suggests a move towards more responsible consumption patterns that can mitigate the effects of increasing consumption footprint. In other words, it underscores the need to bolster robust circular business activities by implementing policies and programs encouraging more citizen participation within EU countries. The rationale is that improved CE practices can yield substantial global, national, and household economic benefits (Ferreira Gregorio et al., 2018; Lyeonov et al., 2019). Along these lines, the current study aims to investigate how the economic impact of circular business activities optimizes, reducing the environmental impact of the escalating consumption footprint across EU countries. The rationale for this direction hinges on numerous grounds, each contributing to a comprehensive understanding of CE and its implications. Firstly, the environmental impact of the EU’s per capita consumption footprint is exceeding planetary boundaries. This upward trend suggests obstacles to diminishing the EU’s consumption footprint in the forthcoming years (European Environmental Agency, 2024). Thus, this alarming trend necessitates a thorough understanding of managing and moderating the environmental impact of the EU’s consumption footprint. Secondly, while the specific ways in which the consumption footprint hinders the CE are not fully understood (Geissdoerfer et al., 2017), there is a scarcity of studies demonstrating optimal models for assessing the influence of the CE on economic outcomes. Hence, we aim to fill a gap by empirically examining the impact of circular business activities on economic well-being to unveil a direction toward optimization. In order to accomplish our objective, three research questions are articulated. First, is the economic performance of circular business activities optimal in the EU countries? Second, if not, how does the economic performance of circular business activities optimize across the EU? Third, what measures should the EU countries take to improve circular business participation? To answer these questions, we investigated a panel of 27 EU member countries between 2014 and 2023 based on Eurostat and World Bank databases. Then, we utilize the Generalized Method of Moments (GMM) system estimators of linear dynamic panel data models to facilitate the empirical analysis. The idea is to gain insights into the timebound effects of circular business activities on economic well-being, exploring the pattern of EU citizens’ participation for potential optimal outcomes. Along this line, we include the effect of public confidence in government institutions on economic well-being in the study. This aspect enables an understanding of why citizens’participation in circular business activities may improve or decrease across the EU countries. Following this path, the findings reveal a complex relationship between circular business activities and economic well-being. While circular business activities can improve income levels, there are potential downsides. From a policy perspective, we address these drawbacks by underscoring the importance of managing the consumption footprint for CE model improvement. Essentially, the study offers valuable insights that can assist policymakers in optimizing the economic benefit of circular business activities, leading to improved environmental conditions and economic well-being in EU countries. Next, the paper progresses into Section 2 with the literature review and presents the research method in Section 3.Section 4 unveils the results, followed by a discussion in Section 5. Then, it wraps up with the conclusion in Section 6. 2. Literature review 2.1. Economic performance In traditional economic theory, evaluating a country’s economic performance is pivotal in informing decision-making processes across various contexts, from shaping governmental policies to formulating individual investment strategies. It stands as a basis for driving economic trajectories and nurturing sustainable progress. While GDP per capita frequently serves as a benchmark in such assessments, criticisms have arisen regarding its limitations as a singular indicator. Scholars such as D ede cek and Dudzich (2022) have highlighted concerns about the exclusion of factors like income inequality and COGENT ECONOMICS & FINANCE 3 economic freedom, which may distort the accuracy of GDP per capita as a comprehensive metric. Nevertheless, proponents, including Brock and Rathburn (2009), Brown (2023), and Bright Hope International (2023), contend that GDP per capita retains efficiency, particularly in comparative analyses across nations with vastly disparate population sizes. They argue that this measure offers a more equitable basis for evaluating economic performance, accommodating the nuances inherent in cross-country comparisons. 2.2. Overview of economic performance in the EU context As of 2024, the EU has a GDP estimated to be worth $19.35 trillion (nominal) or $26.64 trillion in purchasing power parity (PPP), thus accounting for one-sixth of the global economy. In nominal terms, it is the second biggest economy in the world, just behind the United States of America (USA), and the third largest in terms of PPP, with China and the US in front. Germany, France, and Italy are the bloc’s three largest economies in terms of national GDP. The GDP per capita expressed in PPP was about $56,970 in 2023, but there were remarkable differences between member states that lay well above and those that blew the average. Figure 1, as indicated below, shows the GDP per capita index for EU member states in 2023. The Figure indicates that Luxembourg has the highest GDP level of 140% above the EU average, while Bulgaria recorded the lowest GDP per capita, 36% below the EU average (Eurostat, 2024). 2.3. Circular economy The circular economy has gained significant attention due to recent global imperatives to adopt more sustainable practices to minimize waste, mitigate the rapid depletion of finite resources, and curb emissions. This attention comes from academics, policymakers, and practitioners across all levels, including private, public, and even voluntary organizations (European Parliament, 2023; Geissdoerfer et al., 2020; Kanda et al., 2021; Urbinati et al., 2017). For example, Brydges (2021) investigated the strategies for a more circular fashion industry in Sweden. Geissdoerfer et al. (2022) compared the drivers and barriers and identified 25 obstacles and 10 drivers. The broad focus ranges from sustainable consumption and production to industrial ecology, from startups to small and medium enterprises (eg Kirchherr et al., 2023; Maher et al., 2023; Van Opstal & Borms, 2023). This diversity of interest is also reflected in how CE is conceptualized. At the European Union level, the European Parliament defines the CE as ‘a model of production and consumption that involves sharing, leasing, reusing, repairing, refurbishing, and recycling existing materials and products as long as possible’(European Parliament, 2023, p.115). In a nutshell, it is an economic business model that entails a combination of measures and approaches to minimize waste through the utilization of the least amount of resources but at the same time maximizing value Figure 1. Index for GDP per capita, 2023 (in purchasing power standards) - adopted from Eurostat (2024). 4 O. M. ADEWUMI ET AL. extraction in the process, thus elongating a product’s end-of-life and ultimately moving away from the linear socio-economic Model (Geissdoerfer et al., 2020; Tura et al., 2019). The linear model has pushed excessive material consumption due to the use-and-dispose culture, a process often conceptualized as ‘take, make, and waste’(European Parliament, 2023). In contrast, CE models lean toward a more restorative and regenerative system (Brydges, 2021). Typically, this includes but is not limited to reusing, sharing, leasing, recycling, and recovering materials for production, redistribution, and consumption (Henry et al., 2020; Urbinati et al., 2017). This transition to circular business models, exemplified in the CE model in Figure 2, could be achieved in several ways but mainly through one or a combination of three strategies: retaining product ownership, product life extension, and design for recycling. In this context, organizations must chart a path that aligns with their capabilities and resources (Dumas & Van Wassenhove, 2021). The CE has surfaced as a fundamental element of the EU policy, particularly with the European Commission’s endorsement of a circular economy action plan in March 2020, referred to as the European Green Deal. This plan aimed to use regulatory and non-regulatory measures to achieve the bloc’s 2050 carbon neutrality. Adopting the circular economy principle is estimated to create about 700,000 new jobs with an addition of 0.5% to the bloc’s GDP (European Commission, 2020). Furthermore, switching to CE will protect the environment by slowing down the utilization of natural resources and limiting biodiversity loss, reducing raw material dependence as the world’s population continues to grow (European Parliament, 2023). 2.3.1 Circular economy and economic performance Research suggests that adopting a CE model in the EU can positively impact economic growth and enhance an organization’s sustainability performance (Dey et al., 2022). Busu (2019) and Vuta et al. (2018) found that resource productivity and real economic growth improve with higher recycling rates and increased investment in research and innovation. Busu (2019) elucidates by identifying critical economic factors driving the development of the circular economy in the EU, including resource productivity, labor employed in environmental protection, recycling rates, and renewable energy use. George et al. (2015) propose a theoretical model suggesting that environmental quality improvements are not directly linked to economic growth but to increases in the environmental self-renewal rate or recycling ratio. According to Horbach and Rammer (2019), firms with circular economy innovations experience growth in turnover and employment, indicating a better financial standing despite no significant impact on labor productivity. Hysa et al. (2020) further support this view, emphasizing the importance of sustainability, innovation, and investment in initiatives that produce no waste in promoting economic growth. From this perspective, Grdic et al. (2020) underscore the potential of the circular economy to ensure economic and GDP growth while reducing natural resource use and enhancing environmental protection. More recently, Dey et al. (2022) found that CE adoption can produce superior environmental performance through energy and resource efficiency and reduce waste in SMEs. 2.4. Consumption footprint Transitioning to CE within the EU requires that all stakeholders reduce their consumption footprint. According to the European Environment Agency (2023), the consumption footprint refers to the overall Figure 2. Circular economy model adopted from Geissdoerfer et al. (2020). COGENT ECONOMICS & FINANCE 5 impact of the consumption of goods and services on the environment and climate of EU citizens, regardless of where these goods and services are produced. It is also an essential step towards the European Green Deal and, overall, the United Nations’sustainable development goals (SDGs), mainly responsible production and consumption (SDG12) (UN, 2024). The European Commission –Joint Research Centre (EC-JRC) devised the Consumption Footprint indicator to assess the effects of consumption within the EU. This indicator is a process-based Life Cycle Assessment that takes into account the supply chain of 150 representative products selected from five areas of consumption, which include housing, mobility, food, household appliances, and household goods (Castellani et al., 2021; Genta et al., 2022). The importance of monitoring consumption footprints was re-emphasized in the 2023 revised circular economy framework. The revised version includes new indicators on ‘material footprint and resource productivity –to monitor material efficiency’and ‘consumption footprint –to monitor if EU consumption fits within planetary boundaries’(European Commission, 2020). In 2021, food consumption, housing, and mobility had an environmental impact in the EU, accounting for 48%, 19% and 15%, respectively. Studies show that the consumption footprints of EU citizens are high and most likely to increase further by 2030 based on the present trends, thus exceeding the EU’s fair share of planetary boundaries (European Environment Agency, 2023). Notably, although the values remained higher in 2021 than in 2010, this was also amidst the Eighth Environment Action Programme’s call for the EU to reduce its consumption footprint considerably (European Environmental Agency, 2024). Figure 3 below summarizes the consumption footprints of the 27 EU Member States in 2021 compared to 2010. As shown in the Figure, the difference between the highest and the lowest two States is about sixfold. Overall, understanding the consumption footprints of EU residents provides valuable insights into the environmental and climate impact of consumption patterns and can shape policies to support them. This transition to CE is a shared responsibility at various levels of government and stakeholders (OECD, 2024a), each having different roles in the form of pressure exerted (Yu et al., 2022). For example, the national and local governments can collaborate as promoters and enablers of CE (OECD, 2024a), and consumers can adapt their consumption patterns to minimize their consumption footprint. Previous studies found that stakeholder pressure can catalyze a firm to become more environmentally friendly and produce resource-efficient products (Pinheiro et al., 2022). Rodr ıguez-Esp ındola et al. (2022) argued that the customer, as a stakeholder, can pressure an organization to adopt CE principles. However, this requires citizens to have confidence in the government’s policies. Figure 3. Consumption footprints for EU countries in 2010 and 2021 adopted from the European Environment Agency (2024). 6 O. M. ADEWUMI ET AL. 2.5. Governance-induced confidence According to the Organisation for Economic Cooperation, ‘trust in government refers to the proportion of individuals who express trust in their national government’(OECD, 2024b) 1 . Trust is of two types: trust accorded to impersonal bodies like the government and trust given to people. The trust given to people is further categorized as a particularised trust to people we know and generalized or social trust to strangers (Muringani, 2022). Several empirical studies show that good governance practices impact the attitudes and citizens’behavior toward government policies (Mansoor, 2021; Muringani, 2022). This view is supported by Mawutor et al. (2023), who argue that the quality of governance can moderate the relationship between CE and carbon emission such that the emission rate reduces when governance is perceived to be efficient. Conversely, declining trust in the government indicates fundamental dissatisfaction (Citrin, 1974), reducing the government’s capacity to address public policy concerns (Chanley et al., 2000). To this effect, it is logical that the ability of the government to promote green practices requires reducing consumption footprints (Mawutor et al., 2023). In a panel data study (1996–2017), Baloch et al. (2019) demonstrated the negative association between governance and carbon emission in Brazil, Russia, China, and South Africa, commonly known as BRICS. In this fashion, Muringani (2022) argued that trust matters for regional economic growth and emphasized the need to develop interventions to generate trust. Transitioning to CE, which would reduce the consumption footprint, is a top-down policy driven by the EU-level and national governments. However, the success or failure of this policy depends on the extent to which citizens have confidence in their governments and institutions to make the right decisions. Previous studies show an association between trust in public institutions and outcomes (Price et al., 2023). Therefore, public trust can be essential for tackling long-term societal challenges such as reducing consumption footprints or transitioning to CE. 3. Research method 3.1. Data and sources With the exemption of GDP per capita (per capita gross domestic product), this investigation employs a dataset from the European Commission online source, ie the Eurostat database for 27 European Union member states. 2 The panel’s GDP per capita dataset was obtained from the World Bank database (The World Bank, 2024). 3 The unavailable values for GDP per capita in 2023 and consumption footprint for 2022 and 2023 were computed from the average values of the previous years to ensure balanced panel data covering 2014 to 2023. Supplementary Appendix Table A1 conveys other essential information about the dataset, such as description and metric information (see Supplementary Appendix). 3.2. Variables Regarding economic performance indicators, several alternatives to GDP have been proposed in the literature, including the Human Development Index (HDI) (Costanza et al., 2009; van den Bergh, 2009). Nonetheless, Brock and Rathburn (2009), Brown (2023), and Bright Hope International (2023) recommend the relevance of GDP per capita, particularly for its efficacy in comparative analyses across nations with significantly divergent population sizes. Along this line, this study’s primary independent variable influencing economic well-being is ‘circular business activities.’Horbach and Rammer (2019) posit that firms implementing innovations in the circular economy witness an upswing in both turnover and employment, suggesting an improved financial status, albeit without a substantial effect on labor productivity. In this context, it indicates that circular business activities could potentially bolster economic and GDP growth while concurrently diminishing the utilization of natural resources and augmenting environmental protection (Donaghy, 2022; Sany e-Mengual & Sala, 2023). The ‘Government’s confidence’is another crucial variable influencing economic performance. The underlying premise is that public trust is critical in addressing lasting societal challenges, such as diminishing consumption footprints or transitioning towards the operations of a CE. Existing literature demonstrates a correlation between trust in public institutions and consequential outcomes (Price et al., 2023). COGENT ECONOMICS & FINANCE 7 negative impact of a decline in public trust in the United States of America. So, lacking public trust could hinder the promotion of critical domestic policies (Chanley et al., 2000). 6. Conclusions 6.1. Policy implications This study suggests that managing the consumption footprint has significant implications for optimizing the economic growth impact of circular business activities in EU countries. However, the relationship between consumption footprint and economic growth optimization is nuanced. While circular business activities improve economic growth, increasing the consumption footprint reduces this growth effect slightly, decoupling environmental impacts from economic growth. Note that the consumption footprint has a reduced negative economic impact, leading to diminished environmental consequences. This scenario indicates that GDP is growing faster than the negative economic impact of consumption footprint, a notion of relative decoupling. The implication is that while circularity can enable economic growth, the relative growth impact associated with the environmental consequence of consumption footprint is suboptimal. Thus, improved consumption footprint management becomes imperative for achieving sustainable and optimal economic growth impact of circular business activities regarding absolute decoupling (see Sany e-Mengual & Sala, 2023). In this context, policies promoting circular business activities should prioritize efficiently reducing the environmental consequences of consumption footprints further to ensure long-term sustainability and optimization. This could be achieved if policymakers implement more effective strategies regarding barriers and opportunities associated with circular business activities to foster efficient CE operations toward entirely decarbonizing the EU countries. Besides, since circular economy activities incentivize improving peoples’economic well-being, relevant policy formulation of circular economy participation can be scaled up through (in) direct public and private investment instruments. These investment priorities can be piloted through entrepreneurship activities of startups, research and development activities across the sectors of the economy, and the adoption of innovative circular economy practices across households. Additionally, policy implications arising from these findings include the importance of implementing relevant policies to incentivize improvement in trust and confidence in governance. This view implies that the governments of the EU member states should further seek to improve public trust through a more consistent and transparent communication of government intentions and policies. Drawing on this insight, intentionally raising public awareness about the importance of responsible consumption patterns can be crucial. This effort highlights the environmental benefits and economic advantages of a CE. In light of this observation, if relevant and improved resources that promote circular economic activities are readily available, they can further encourage greater public participation in these sustainable business practices. This viewpoint underscores the necessity of complementing economic considerations with social, institutional, and environmental factors to optimize individual well-being. Meanwhile, the overall theoretical and practical implication and relevance of consumption footprint and recycled material cannot be overemphasized. Specifically, the result further outlines the relevance of a hybrid life-cycle assessment that offers detailed upstream and downstream environmental impacts of conventional and recycled materials. 6.2. Limitations and further research This study institutes valuable insights that contribute to extant research on CE models. While so, it has some caveats. First, while the study looks into nine years of circularity effect on economic growth, other proxies for circular business and economic activities with extended time coverage could provide distinct insights and broader policy relevance. Second, the analysis perspective in the current study focuses on country-level effects, whereas the missing regional industry and sector-level impacts pose a limitation. This relationship could be investigated further by including regional and sector-level/industry heterogeneity perspectives to understand our study context better, thus providing additional topical information. Lastly, as the current study provides an understanding of circular economic growth effect optimization through consumption footprint management, the degree to which the effect optimizes is beyond our 14 O. M. ADEWUMI ET AL. analysis. To this end, future research investigating the efficiency effect of the consumption footprint from the context of the current study is relevant for improved understanding. 6.3. Concluding remarks Given a new pathway for sustainable growth and a foremost component of the European Green Deal, this study further puts the EU’s circular economy in the spotlight. Considering the panel of 27 EU member states, the study investigated the role of circular business activities, consumption footprint, and confidence in governing institutions on income level from 2014 to 2023. Insightful results were documented by implementing the dynamic panel model with system GMM estimators and other relevant empirical approaches. These results include that (i) peoples’participation in circular business and economic activities is a positive and direct driver of general income level, (ii) while income level is positively influenced by participation in circular economy activities, consumption footprint moderates the positive effect, and (iii) public confidence in governing institutions vis- a-vis SDG16 affect income level positively. Overall, the study emphasized that while circular business activities improve the economic well-being of EU countries, there is a need to manage the consumption footprint further for optimal economic growth. Then, it presents some implications and offers possible policy formulations. Acknowledgment Authors appreciate the selfless service of the Editor and anonymous referees. Author contributions Olugbenga Michael Adewumi is involved in conceptualization, data curation, formal analysis, methodology, the introduction section, the original draft, and editing. Andrew Alola Adewale is engaged in conceptualization, data curation, methodology, discussion of results, writing –original draft, and editing. Chukwuemeka Echebiri is involved in conceptualization, data curation, writing of the literature section, writing – the original draft, and editing. Disclosure statement No potential conflict of interest was reported by the author(s). Notes 1. General government –Trust in government –OECD Data. 2. Database –Eurostat (europa.eu). 3. World Development Indicators jDataBank (worldbank.org). 4. The endogeneity issue associated with Equation (2) is eliminated by transformation to remove the firm fixed effect using a first-differencing approach (detail in Arellano & Bond, 1991). Also, following Blundell and Bond (1998), the estimation of Equation (2) followed Equation (3) and was performed with a system GMM estimation strategy to eliminate significant finite sample biases and possible endogeneity issues (detail in Roodman, 2009). Funding No funding was received for this study. About the authors Olugbenga Michael Adewumi is a research affiliate at the Inland Business School at Inland Norway University of Applied Sciences, Norway. He has a doctoral background in innovation and business economics. He also has a double master’s degree in international management, strategy, and music business management from the University of Agder, Norway. His research interests include innovation and business economics, efficiency and management, and marketing studies. COGENT ECONOMICS & FINANCE 15 Chukwuemeka Echebiri is an Associate Professor at Inland Norway University of Applied Sciences (INN), Norway. He holds an MSc in Business from Nord University, Norway, and a PhD in Innovation in Services from INN. His research interests include working life, employee-driven innovation, employee empowerment, leadership behavior, and sustainability. He has previously worked in banking and insurance. Dr. Andrew Adewale Alola earned a PhD in Economics from Eastern Mediterranean University, Cyprus, and holds an MSc in Applied Mathematics and Computer Science from the same institution. Before joining the CREDS-Centre for Research on Digitalization and Sustainability at Inland Norway University of Applied Science in October 2022, he was an Assistant Professor at the University of Vaasa in Finland. He taught at Nis¸antas¸ıUniversity and Istanbul Gelisim University in Turkey. Dr. Alola has also been affiliated with institutions like the Lebanese American University, South Ural State University, and the University of Johannesburg. His research focuses on Sustainability, Energy, and Environmental Economics, with over 200 publications in prestigious journals, and he has been listed in the Top 2% of Global Scientists in Energy and Environment since 2020. ORCID Olugbenga Michael Adewumi http://orcid.org/0000-0002-8562-5821 Data availability statement Based on the Eurostat and World Bank databases, an analysis was conducted, and new data was generated. These datasets can be accessed freely and are publicly available at Database –Eurostat (europa. eu) and World Development Indicators jDataBank (worldbank.org). No data cannot be shared for ethical, privacy, or security concerns. References Acemoglu, D., Johnson, S., & Robinson, J. A. (2005). Institutions as a fundamental cause of long-run growth. In Handbook of economic growth, (vol. 1, pp. 385–472). Elsevier. Acemoglu, D., Johnson, S., Robinson, J. A., & Yared, P. (2008). Income and democracy. American Economic Review, 98(3), 808–842. https://doi.org/10.1257/aer.98.3.808 Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. 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