Unraveling the spillover effects of socio-governance on circular transition: Does contract monitoring sand or grease the wheels of circular economy?

Abstract

Governments worldwide have prioritized addressing global climate change by integrating the circular economy (CE) principles into public procurement practices. The driving force behind this study is to investigate the spillover effects of socio-governance factors on the CE transition, focusing on the role of contract monitoring. Panel data encompassing 16 EU countries that have made limited progress in meeting their greenhouse gas emission targets from 2010 to 2019 are utilized for the analysis. To estimate the spatial spillover effects, various models including spatial Durbin models, spatial lag regression models, spatial error models with spatial and time fixed-effects, spatial autocorrelation and mixed-effects ML and REML regression models are employed. Findings reveal that robust contract monitoring plays a significant role in enhancing CE, emphasizing that transparent public procurement and accountable decision-making are key drivers of the circular transition. Legal frameworks that protect property rights and promote regulatory quality further facilitate CE adoption, with positive spatial spillover effects suggesting that well-governed countries indirectly encourage CE implementation in neighboring countries. Conversely, stringent environmental policies lead to regulatory arbitrage, in line with the "pollution haven hypothesis," as waste-intensive industries relocate to jurisdictions with weaker enforcement, undermining collective CE efforts. The results highlight that governance structures not only act as domestic CE drivers but also as external factors influencing regional environmental outcomes. The study advocates for the harmonization of regulatory standards and enhanced contract monitoring mechanisms across the EU to prevent cross-border regulatory evasion. Strengthening social cohesion is also found to amplify these effects, underscoring the importance of multi-dimensional socio-political foundations for a successful and cooperative CE transition.