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Eco-Innovation and Firm Growth in the Circular Economy: Evidence from European SMEs

Author

Listed:
  • Pelin Demirel

    (Dyson School of Design Engineering, Imperial College London, UK.)

  • Gamze Ozturk Danisman

    (Faculty of Economics Administrative and Social Sciences, Bahcesehir University, Istanbul,Turkey)

Abstract

As the circular economy (CE) concept gains growing popularity among consumers and producers, small and medium-sized enterprises (SME) increasingly look for ways to reorganize their offering and operations to integrate into the CE. This study examines the impact of (1) circular eco-innovations and (2) external funding available for CE activities on the growth of European SMEs using a dataset of 5100 SMEs across 28 European countries in 2016. Findings reveal that a significant threshold investment (i.e. higher than 10% of revenues) into circular eco-innovations is required for SMEs to benefit from investing into the CE. Moreover, the majority of circular eco-innovations fail to boost the growth rates of SMEs, with the exception of investments into eco-design innovations. While traditional forms of debt and grant finance targeted to CE activities are found to have no or negative impact on the growth of SMEs, equity finance (i.e. angel and venture capital investments) contributes positively to their growth. The study offers insights into the lower levels of SME engagement in the CE as well as policy implications for improving engagement.

Suggested Citation

  • Pelin Demirel & Gamze Ozturk Danisman, 2019. "Eco-Innovation and Firm Growth in the Circular Economy: Evidence from European SMEs," SPRU Working Paper Series 2019-13, SPRU - Science Policy Research Unit, University of Sussex Business School.
    • Handle: RePEc:sru:ssewps:2019-13
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    References listed on IDEAS

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    Cited by:

    1. Amalia Rodrigo-González & Alfredo Grau-Grau & Inmaculada Bel-Oms, 2021. "Circular Economy and Value Creation: Sustainable Finance with a Real Options Approach," Sustainability, MDPI, vol. 13(14), pages 1-30, July.
    2. Sara Moggi & Renata Paola Dameri, 2021. "Circular business model evolution: Stakeholder matters for a self‐sufficient ecosystem," Business Strategy and the Environment, Wiley Blackwell, vol. 30(6), pages 2830-2842, September.
    3. Gutberlet, Melissa & Preuss, Lutz & Thorpe, Andrea Stevenson, 2023. "Macro level matters: Advancing circular economy in different business systems within Europe," Ecological Economics, Elsevier, vol. 211(C).
    4. Garrido-Prada, Pablo & Lenihan, Helena & Doran, Justin & Rammer, Christian & Perez-Alaniz, Mauricio, 2021. "Driving the circular economy through public environmental and energy R&D: Evidence from SMEs in the European Union," Ecological Economics, Elsevier, vol. 182(C).
    5. Jose García‐Quevedo & Elisenda Jové‐Llopis & Ester Martínez‐Ros, 2020. "Barriers to the circular economy in European small and medium‐sized firms," Business Strategy and the Environment, Wiley Blackwell, vol. 29(6), pages 2450-2464, September.
    6. Ilija Moric & Jelena Šaković Jovanović & Rajka Đoković & Sanja Peković & Đurđica Perović, 2020. "The Effect of Phases of the Adoption of the Circular Economy on Firm Performance: Evidence from 28 EU Countries," Sustainability, MDPI, vol. 12(6), pages 1-12, March.
    7. Nathalia Suchek & Cristina I. Fernandes & Sascha Kraus & Matthias Filser & Helena Sjögrén, 2021. "Innovation and the circular economy: A systematic literature review," Business Strategy and the Environment, Wiley Blackwell, vol. 30(8), pages 3686-3702, December.
    8. Ren, Qiuzhen & Albrecht, Johan, 2023. "Toward circular economy: The impact of policy instruments on circular economy innovation for European small medium enterprises," Ecological Economics, Elsevier, vol. 207(C).
    9. Fabio De Felice & Antonella Petrillo, 2021. "Green Transition: The Frontier of the Digicircular Economy Evidenced from a Systematic Literature Review," Sustainability, MDPI, vol. 13(19), pages 1-26, October.
    10. Nicolas Haber & Mario Fargnoli, 2022. "Product-Service Systems for Circular Supply Chain Management: A Functional Approach," Sustainability, MDPI, vol. 14(22), pages 1-19, November.
    11. Gnekpe, Christian & Plantec, Quentin, 2023. "Regulatory push-pull and technological knowledge dynamics of circular economy innovation," Technological Forecasting and Social Change, Elsevier, vol. 196(C).
    12. Felix Carl Schultz & Robert Jaroslav Reinhardt, 2022. "Facilitating systemic eco‐innovation to pave the way for a circular economy: A qualitative‐empirical study on barriers and drivers in the European polyurethane industry," Journal of Industrial Ecology, Yale University, vol. 26(5), pages 1646-1675, October.
    13. Simone Sehnem & Adriane A. Farias S. L. de Queiroz & Susana Carla Farias Pereira & Gabriel dos Santos Correia & Edson Kuzma, 2022. "Circular economy and innovation: A look from the perspective of organizational capabilities," Business Strategy and the Environment, Wiley Blackwell, vol. 31(1), pages 236-250, January.
    14. Liang, Wuchao & Wang, Ying & Hou, Li, 2023. "Does private equity investment influence enterprise innovation strategy?," Finance Research Letters, Elsevier, vol. 58(PD).
    15. Nikos Chatzistamoulou & Phoebe Koundouri, 2024. "Is Green Transition in Europe Fostered by Energy and Environmental Efficiency Feedback Loops? The Role of Eco-Innovation, Renewable Energy and Green Taxation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(6), pages 1445-1472, June.
    16. Ozili, Peterson K, 2022. "Circular economy and central bank digital currency," MPRA Paper 113469, University Library of Munich, Germany.
    17. Nathalia Suchek & João J. Ferreira & Paula O. Fernandes, 2022. "A review of entrepreneurship and circular economy research: State of the art and future directions," Business Strategy and the Environment, Wiley Blackwell, vol. 31(5), pages 2256-2283, July.

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    More about this item

    Keywords

    Circular Economy; Eco-Innovation; Eco-design; Entrepreneurship; Finance; Growth; SMEs.;
    All these keywords.

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