Governance and Economic Policy for Circular Economy Transition: Insights from the European Union and Malaysia

Abstract

The transition toward a circular economy (CE) represents a critical strategy for achieving sustainable growth and resource efficiency. Economic policy instruments play a central role in enabling this transition by aligning fiscal, industrial, and innovation frameworks with sustainability objectives. While the European Union (EU) has implemented coherent and binding circular economy policies, developing nations such as Malaysia remain at an early stage of integrating economic policy and circularity principles. This paper examines the economic policy instruments influencing the transition toward a circular economy in Malaysia and compares them with the EU’s established policy framework. Using a qualitative document analysis approach, the study reviews policy documents, academic literature, and official reports from 2015 to 2024. The findings indicate that Malaysia’s economic policy environment for circular economy implementation remains fragmented, with limited fiscal incentives and a weak link between environmental and industrial policies. Conversely, the EU’s approach demonstrates strong coherence between policy domains, effective monitoring mechanisms, and significant investment in innovation. The paper proposes a framework for enhancing Malaysia’s circular economy readiness through fiscal incentives, industrial symbiosis programs, and integrated national planning. By bridging the gap between economic and environmental policy domains, Malaysia can advance its sustainable development goals and position itself as a regional leader in circular innovation.