How Does the Circular Economy Applied in the European Union Support Sustainable Economic Development?

This research paper aims to find a causal relationship between the circular economy and sustainable economic development. The implementation of the circular economy in the European Union requires, on the one hand, smart regulation and on the other hand, the long-term involvement of all actors in society at all levels—member states, regions, cities, businesses, citizens—and their ability to develop cooperation networks and suitable collaboration and exchange patterns. Moreover, the circular economy is based on business models for reusing, recycling and recovering materials in the production and consumption of goods. This research establishes correlations between circular economy performance measurement indicators and sustainable economic development using panel analysis. Statistically significant correlations were noted between GDP per capita and three independent variables, mainly due to the high R-squared coefficient. This research’s innovation contribution is related to the selection and combination of circular economy indicators. Finally, the results confirmed that an increase in the recycling rate of municipal waste and a decrease in environmental tax revenues and environmental protection expenditures led to an increase in GDP per capita and sustainable economic development.