The impact of circular economy practices on firm performance: evidence from the Western Balkans

PurposeThis paper aims to study the influence that circular economy practices have on the performance of firms in the Western Balkans by observing two specific performance indicators: past revenue growth and future expectations about business growth.Design/methodology/approachThe authors used the Balkan Barometer 2024 Business Opinion data set. The survey was conducted during March and April 2024, across six countries of the Western Balkan region: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. To ensure a representative sample, stratification was used based on region, sector, firm size and ownership structure. Firms were selected through a random sampling process, resulting in a total of 1,200 interviews, with 200 businesses surveyed in each economy. The binary logistic regression was used to analyze the data.FindingsThe results show that firms adopting renewable energy sources, greener material supplies and internal recycling practices experience significant improvements in both past and future performance indicators. The study also highlights that not all circular economy practices produce measurable performance benefits. Practices such as saving materials, selling residues and waste to other companies and designing products that are easier to maintain, use or repair did not show a statistically significant impact on past revenue growth. However, selling residues and waste demonstrated a significant influence on future business growth.Research limitations/implicationsThis research has some limitations. First, this research investigates the impact of circular economy practices at a single point in time, without considering changes in business performance or the circular economy practices over the long term. Second, this research includes only six circular economy practices, leaving out other important circular economy practices. Third, this research considers all sectors of the economy, without disaggregating the analysis based on sector. Fourth, the business performance is measured by past revenue growth and future growth expectations while other performance indicators could have been included for a more comprehensive evaluation.Practical implicationsThe findings of this research offer key implications for policymakers and managers in promoting circular economy practices in the Western Balkans. Policymakers should incentivize practices with proven economic benefits, such as renewable energy, greener materials and recycling while providing financial support, training and innovation hubs. Managers should prioritize these practices for immediate performance gains and try to balance circular economy adoption with growth objectives. Older firms, facing lower growth potential, should innovate their sustainability practices to attract new markets and adapt their business models to enhance competitiveness.Originality/valueTo the best of the authors' knowledge, this study is the first empirical attempt in the Western Balkan region to evaluate the effect of circular economy practices on business performance. The Western Balkan region is still in an early stage of circular economy development, and businesses are increasingly embracing it. However, there is no existing evidence to examine how these circular economy practices affect their performance.