Assessing the Impact of Eco-Innovation, Economic Complexity, and Digitalization on the Circular Economy in Europe

Facing escalating resource depletion and environmental degradation, the transition to a circular economy (CE) has become imperative, with the European Union (EU) emerging as a leading yet uneven performer. This study examines the effects of eco-innovation, economic complexity, and digitalization on CE performance in 22 EU countries from 2010 to 2021. Employing POLS, DKSE, and MMQR estimations, alongside the Dumitrescu–Hurlin panel causality test, the analysis captures both average and heterogeneous effects across CE development levels. The results reveal that all three factors significantly promote CE advancement, with digitalization exerting the strongest influence, followed by economic complexity and eco-innovation. Notably, eco-innovation is more effective in countries with lower CE performance, while economic complexity plays a greater role in more advanced CE contexts, whereas digitalization consistently enhances CE across all levels. Causality tests indicate a unidirectional relationship from economic complexity to CE. Overall, the findings highlight the need for differentiated and context-sensitive policy frameworks that integrate digital transformation, industrial sophistication, and eco-innovative capacity to accelerate the EU’s circular transition.