The Circular Economy as a Foundation for Sustainable Innovation

Purpose: To assess the relationship between the level of circular economy development and innovation efficiency in European Union countries and to build an analytical model of this relationship. Design/Methodology/Approach: The study analyses secondary macroeconomic and innovation statistics for the 27 European Union countries during 2020–2025. An integral circularity index was constructed using waste recycling, resource productivity, and the share of secondary raw materials. Correlation, comparative, and regression analyses were employed to evaluate the relationship between circularity and innovation performance. Research Limitation: The analysis is limited to European Union countries and macro-level indicators. Future research should incorporate firm-level evidence and longitudinal assessments. Findings: The results reveal substantial cross-country variation in circular economy and innovation indicators. Statistically significant positive correlations (0.41–0.56) were identified between the circularity index and innovation performance. Comparative analysis confirmed significant differences between countries with high and low levels of circularity, while regression models showed that the circularity index explains 34–42% of the variation in innovation indicators. Practical Implication: Circular economy is an important factor associated with sustainable innovation, although the link may also reflect broader economic and institutional conditions. Social Implication: Strengthening circular economy practices promotes resource efficiency, environmental sustainability, and long-term economic resilience. Originality/Value: The novelty lies in testing the associations between the integral circularity index and innovation efficiency indicators across all 27 European Union member states, complementing firm-level and sectoral studies with macro-level evidence.