Assessing eco-efficiency in the European Union: integrating dynamic two-stage network SBM and spatial Durbin model to unravel regional heterogeneity

As the European Union (EU) strives for climate neutrality under the European Green Deal, balancing economic growth with ecological efficiency (Eco-efficiency) amid regional disparities remains a critical challenge. This study evaluates the Eco-efficiency of 27 EU countries from 1995 to 2023. For this purpose, a dynamic two-stage network slack-based measure (DNSBM) model is employed to assess production and treatment stages with intertemporal carry-over effects, and a spatial Durbin model (SDM) is applied to capture spatial spillovers and regional heterogeneity. Efficiency scores reveal a persistent East–West divide, with several Western economies operating near the frontier and several Eastern economies lagging. Spatial econometric analysis further indicates that the determinants of Eco-efficiency operate through regime-dependent spillover channels rather than uniformly across the EU. The study contributes by (1) coupling dynamic two-stage network DEA with spatial econometrics to jointly model circular-economy carry-overs and cross-border interdependence; (2) decomposing direct, indirect, and total effects of policy and structural drivers under regional heterogeneity; and (3) deriving region-specific policy guidance for an equitable Green Deal transition.