Understanding location preferences of firms in the circular economy

Although the transition to the circular economy (CE) is slowly underway, business activities that contribute to the CE struggle to find sufficient space. Land is scarce and contested by multiple societal needs, and not just any place is suitable; CE firms are highly diverse, each with their distinct location requirements. To develop effective policies that secure and create space specific to the CE’s needs, in-depth knowledge about these requirements is necessary. This paper contributes to this debate by analyzing the locational preferences of four classes of CE firms in the Netherlands, namely those that contribute towards: the reduction of raw material usage, the substitution of raw materials, product life extension, and high-grade processing. Negative binomial and Poisson models are estimated for a sample of 14,129 neighborhoods, based on business microdata and spatial data on infrastructure, zoning, and agglomeration economies. The models show that infrastructure plays a smaller role than expected in CE firm location in the Netherlands, while the presence of business parks and the concentration of economic sectors in the area, such as the industry and energy sector, are decisive. The analysis confirms that location patterns of CE firms in reduction and extension are quite distinct from substitution and processing, highlighting the need to plan for a diverse network of business parks to stimulate circularity. Some combinations of location qualities are quite scarce, such as business parks in centrally located urban locations, suggesting that conservation and more intensive use of these location types is recommended.