Quantitative Modeling of Investment–Output Dynamics: A Panel NARDL and GMM-Arellano–Bond Approach with Evidence from the Circular Economy

This study develops an integrated panel econometric framework for modeling investment–output dynamics in circular economy sectors, explicitly addressing dynamic propagation, long-run equilibrium relationships, endogeneity, and nonlinear responses. Building on the Samuelson–Hicks Multiplier–Accelerator model, the analysis combines two complementary approaches. A dynamic panel specification estimated by the Generalized Method of Moments (Arellano–Bond) is employed to capture output inertia, intertemporal transmission of investment shocks, and stability properties of the dynamic system. In parallel, a nonlinear panel ARDL model estimated using the Pooled Mean Group (PMG/NARDL) methodology is used to identify cointegration and to distinguish between the long-run and short-run effects of positive and negative investment variations. The empirical analysis relies on a balanced panel of 28 European economies (EU-27 and the United Kingdom) over the period 2005–2023, using sectoral circular economy data, with gross value added as the output variable and gross private investment as the main regressor. The results indicate the existence of a stable cointegrated relationship between investment and output, characterized by significant asymmetries, with expansionary investment shocks exerting larger and more persistent effects than contractionary shocks. Dynamic GMM estimates further confirm delayed investment effects and a stable autoregressive structure. Overall, the paper contributes to mathematical economic modeling by providing a unified dynamic–equilibrium panel framework and by extending the empirical relevance of Multiplier–Accelerator dynamics to circular economy systems.