Abstract: The degradation of the environment is one of the most urgent challenges today. Since the industrial revolution, we have only known the model of linear economy that deals with the relationship between growth and consumption with the creation of large amounts of waste. As an alternative, a new the concept of the mod-ern economy, the circular economy. The underlying assumptions of such a system are characterised by a ten-dency towards efficient use, and recycling and re-use of resources asit would limit the negative environmental impacts of the economy, while reducing costs in economic activities with the aim of economic growth. Our goal in this paper is to highlight the role and significance of the Circular Economy and natural resources in the process of creation of competitive advantages in a globaly connected world as well as in Bosnia and Herzegovina. Our companies have preferred the mass production method of material wealth based on the mass consumption of natural resources as the main economic development method while pursuing high economic growth and maximum economic profit. These days, this economic development method faces various limitations. Many problems, such as mass generation of wastes exceeding the natural purification capacity, enormous damage environment, deepening of natural disasters and global warming, various disputes surrounding natural resources. This analysis highlights that the use of circular economy tools can help economic policy makers and researchers to take into account the impact on the environment during strategic planning activities and projections of economic growth in BiH.

Small and medium-sized enterprises (SMEs) are one of the key development factors of the economy in many countries. They stimulate competitiveness and innovativeness, contribute to the growth of employment and also have an impact on improving the overall economic situation in the country. Bosnia and Herzegovina is a transition country that has still not adequately organized the development concept of small and medium-sized enterprises. In Bosnia and Herzegovina (BiH) there is an entrepreneurial initiative but without significant government support in the realization of business ideas of potential entrepreneurs or the implementation of innovative ideas, although their personal success generates and benefits the whole society. The central research hypothesis reads: Innovation has a positive impact on the growth and development of small and medium-sized manufacturing enterprises in BiH. The authors seek to present the current state of innovativeness in the SME sector in BiH with a review of the situation in the countries of the region and to propose certain measures to accelerate their development. This paper uses the Global Innovation Index Reports, followed by the World Bank Report on Business Ease, which measures the degree of national competitiveness and innovation of the economy, as well as the results of primary research on a sample of 200 manufacturing SMEs in BiH. The general objective of the research in this paper is to consider and review the effects of innovations in the operations of emerging SMEs and their impact on the growth of market share and increase of the total revenue.