Climate Transition Risk and Financial Development in a Resource-Dependent Economy: Evidence from Kazakhstan

Climate transition risks are increasingly relevant to financial development, particularly in resource-dependent economies. However, the existing literature has largely examined how financial development affects environmental outcomes, while the reverse relationship remains comparatively understudied. This study investigates whether carbon emissions and renewable energy consumption influence financial development in Kazakhstan over 1996–2024, controlling for economic growth, inflation, and foreign direct investment. Financial development is measured by domestic credit to the private sector provided by banks (% of GDP). Using the Autoregressive Distributed Lag (ARDL) bounds testing approach and accounting for structural breaks, the study examines short-run and long-run dynamics. The results confirm a long-run equilibrium relationship among the variables, but none of the individual long-run coefficients is statistically significant. This finding does not imply that climate-transition factors are economically irrelevant; rather, it suggests that their effects have not yet translated into persistent, statistically identifiable changes in aggregate bank-based financial development. In the short run, economic growth has a positive effect, while inflation has a negative effect, with renewable energy consumption and foreign direct investment showing lagged effects. The study contributes new evidence on the climate–finance nexus from a resource-dependent transition economy and highlights the evolving, but still limited, transmission of climate-transition dynamics through Kazakhstan’s banking system.