Unlocking circular economy potentials: testing the moderating and mediating roles of cultural diversity, technological innovation, and digitalization

Green finance (GF) has emerged as a key policy instrument for advancing the circular economy (CE), yet its impact varies considerably across OECD countries. Existing research has not sufficiently examined how institutional, technological, and cultural contexts shape this relationship. This paper addresses this gap by integrating multiple theoretical perspectives, neo-institutional theory, green multi-stakeholder theory, innovation diffusion theory, and the technology–organization–environment framework, to investigate the moderating and mediating roles of cultural diversity, technological innovation, and digitalization in the GF–CE nexus. Drawing on a panel dataset covering OECD countries from 2014 to 2023 and applying fixed-effects regression analysis, we find a generally positive association between GF and CE investments. However, moderated-mediation effects reveal more complex dynamics. Technological innovation and digitalization significantly moderate the GF–CE relationship, while only digitalization exerts a positive mediating influence. Cultural diversity exhibits a dual effect: it mediates the GF–CE relationship positively but moderates it negatively. Moreover, subgroup analysis indicates that in highly circular OECD economies, GF may generate diminishing or even negative returns, particularly by constraining technological innovation. These findings highlight the contingent nature of GF effectiveness and carry important implications for tailoring CE policies to different institutional and technological contexts.