By analyzing regional economic structures, environmental sustainability, and investment patterns, key findings and policy recommendations are derived to enhance economic resilience and sustainable growth. This document is organized in two sections. The first one presents simulation Models for Trade, FDI, and Migration Impact on Innovation in Circular Economy (CE) Transition. The second section outlines simulation models for Assessing Trade and GVC Reconfiguration’s Impact on CE Transition.

The first chapter of Section 1 focuses on the impact of Foreign Direct Investment (FDI) on Circular Economy. The analysis investigates the factors influencing inward FDI in Italian regions, particularly in CE-related sectors. Data from multiple sources, including Eurostat and ISTAT, highlight regional economic, social, and environmental characteristics. Key findings can be summarized as it follows. Market size (GDP) positively correlates with FDI attraction. Environmental quality (emissions per capita) negatively affects total FDI but positively correlates with CE-FDI, indicating that pollution-heavy regions attract sustainability-focused investments. Recycling practices and logistical infrastructure enhance FDI inflows, particularly in CE sectors. High-tech employment is a significant factor in attracting CE-FDI. The robustness of results was tested through cumulative FDI project counts and Poisson regression, confirming that CE investment drivers differ from traditional FDI influences. 

The second chapter tackles exposure gaps in environmental impact between domestic and foreign firms. Using ORBIS and EXIOBASE datasets, exposure gaps were assessed based on ownership structures and environmental performance. Key insights are the following. Regions with higher research & development (R&D) investments and better environmental governance exhibit smaller exposure gaps. Foreign multinationals originating from countries with stricter environmental regulations tend to adopt better sustainability practices in their Italian subsidiaries. Higher poverty rates correlate with a greater likelihood of firms relocating polluting activities abroad. Regression analyses confirm that exposure gaps depend on institutional quality, industrial composition, and technological readiness. 

The third chapter addresses the role of multinationals in the circular economy transition. Multinational enterprises (MNEs) are found to play a key role in the diffusion of CE practices. Italian MNEs investing abroad are indeed more likely to adopt green investments. Yet, foreign MNE subsidiaries in Italy vary in sustainability adoption based on their home country’s regulatory framework. Firms in global value chains (GVCs), particularly in relational linkages, demonstrate greater sustainability engagement. International trade and participation in complex supply chains increase the likelihood of green investment. 

The first chapter of the second section deals with the interplay between circular economy, trade, and regional growth. The study builds a simulation model to estimate Domestic Value Added (DVA) growth in CE-related exports across Italian regions. Findings suggest that regions with lower initial DVA in CE trade have higher growth potential. Moreover, exports to developed economies drive CE-related growth, while those to developing countries show weaker effects. Higher institutional quality and selective waste collection expansion correlate with CE trade growth. Finally, Advanced manufacturing (robot adoption) enhances CE competitiveness. 

The second chapter analyzes the relationship between global value chains and regional resilience. The External Exposure Indicator (EEI) was developed to assess regional vulnerability to external shocks. The study finds that regions highly reliant on China for plastic waste exports suffered employment losses after China’s 2018 waste import ban. Regions with strong waste management infrastructure adapted better to trade disruptions. Ownership linkages and foreign parent companies influence resilience and sustainability adoption. 

The findings of the analyses presented in this policy bear relevant policy implications and recommendations. The findings highlight the need for region-specific policies to boost sustainable FDI, enhance CE trade competitiveness, and mitigate external economic shocks. Key recommendations include: 1) Encouraging CE investment through incentives for high-tech sectors and recycling initiatives; 2) Strengthening institutional frameworks to attract foreign investment in sustainable industries; 3) Developing targeted trade policies to support regional resilience in CE sectors; 4) Enhancing collaboration between MNEs and local firms to facilitate sustainability diffusion. 

This research provides valuable insights for policymakers aiming to create a resilient, sustainable, and inclusive economic landscape in Italy and beyond. Strategic investments in CE sectors, improved institutional governance, and targeted trade policies will be crucial in fostering long-term economic and environmental sustainability.