SME growth and economic inefficiency due to environmental pollution: the case of SMEs in monocities of Kazakhstan

Relevance. This study explores the intersection of economic growth and environmental sustainability in Kazakhstan’s monocities. Traditionally dependent on resource-based sectors, these towns face such persistent issues as economic vulnerability, over-reliance on specific industries, and environmental degradation. Research Objective. The research aims to investigate how the expansion of small and medium-sized enterprises (SMEs) is linked to economic inefficiency arising from environmental pollution in Kazakhstan’s monocities. Data and Methods. The analysis uses data from 26 monocities for the period 2018–2022. The econometric approach explores the relationship between SME growth and environmental costs through indicators such as the ratio of ecological expenditures to gross regional product, the number of SMEs, and the share of SMEs in each monocity relative to the total across all monocities. Estimation techniques include Ordinary Least Squares (OLS), random effects, and Generalized Method of Moments (GMM) regressions. Results. The results consistently reveal a positive correlation between SME growth and ecological expenditures. This indicates that while SME development contributes to economic activity, their proliferation in monocities is associated with a disproportionate rise in environmental costs, resulting in increased economic inefficiency. Conclusions. To enhance economic efficiency without compromising environmental goals, government policy should encourage the development of environmentally responsible SMEs. Recommended measures include tax incentives, financial support, green certification, improved environmental infra-structure, adoption of digital technologies, and implementation of smart city concepts. These strategies are essential for fostering sustainable growth, especially as Kazakhstan seeks to move beyond the “resource curse” and pursue regional development aligned with global environmental priorities. © Lee H.-S., Asmyatullin R. R., Shurenov N. B., Tovma N. A., Degtereva E. A., 2025.