Modeling circular economy innovation and performance indicators in European Union countries

The concept of circular economy (CE) is increasingly prominent in European Union (EU) countries, considering the demand for incorporating renewable resources into end products. Similar to sustainable development dimensions, CE indicators can be classified within economic, social, and environmental protection categories, depending on their measuring scope, and within micro-, meso-, and macro-level, depending on the level of observation. The aim of the research is to determine the impact of CE innovation on CE performance in EU countries by modeling the Eurostat indicators via SmartPLS software. Relying on the relevant literature review, the paper first presents the concept of CE and the composite indicators used for evaluating its specific performances, as well as previous global and European experiences. Further, the study focuses on the modeling options for CE performance composite indicators demonstrating the relationship between the accomplishments of CE and the use of innovative measures at the level of products, services, or processes. Based on the data from EU27 countries for the period 2018–2021, the paper explores the relationship between variable and model composite indicators using SmartPLS software. SmartPLS output results support four assumption paths between CE indicator groups which are also confirmed with convergent and discriminant validity and heterotrait-monotrait ratio (HTMT) values. CE path modeling structure confirms the positive connection between CE innovations and CE performance emphasizing the need for providing a supportive environment and funds for innovations.