Elsevier

Ecological Economics

Volume 199, September 2022, 107504
Ecological Economics

The circular economy and the optimal recycling rate: A macroeconomic approach

https://doi.org/10.1016/j.ecolecon.2022.107504Get rights and content
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Abstract

This paper studies the economic implications of the circular economy and recycling activities from a macroeconomic perspective. The paper incorporates the circular economy into an otherwise standard neoclassical dynamic general equilibrium linear economy model, in which the production function depends on capital, labor, and raw materials. Raw materials are a composite of natural resources (the linear economy) and recycled material (the circular economy). Waste is a function of consumption but can be incorporated back into production activities through recycling. We find the existence of a positive S-shaped relationship between the optimal recycling rate and economic development, indicating that increasing the circularity of the economy is a necessary condition to augment social welfare in a growing economy. The optimal recycling rate depends positively on the pollution damage and waste content of final consumption goods. Simulation of the model supports the existence of a steady-state Environmental Kuznets Curve (EKC) relationship between the stock of waste and the output in the presence of a circular economy. Finally, we find that while a permanent improvement in recycling technology has positive effects on output, expanding the circularity of the economy, an increase in the cost of natural material has harmful effects on output, increasing waste accumulation and reducing recycling.

JEL classification

Q53
W57

Keywords

Circular economy
Linear economy
Waste
Recycling rate
Raw material
Natural resources

Cited by (0)

We would like to thank to P. Krusell, J.L. Torres, P. Villalobos and three anonymous reviewers for very useful comments and suggestions on a previous version of the manuscript. Anelí Bongers acknowledges the financial support from the Spanish.