Research on World Agricultural Economy

Linkages Between Primary Sector Value Added, Financial Development, and Economic Growth: Evidence from Vanuatu

Huy Nguyen Quoc

Faculty of Finance and Accounting, Lac Hong University, Tran Bien Ward, Dong Nai 76000, Vietnam

Dinh Le Quoc

Faculty of Finance and Accounting, Lac Hong University, Tran Bien Ward, Dong Nai 76000, Vietnam

DOI: https://doi.org/10.36956/rwae.v6i4.2643

Received: 17 August 2025 | Revised: 10 September 2025 | Accepted: 19 September 2025 | Published Online: 4 November 2025

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Abstract

In the context of Vanuatu—a small island nation in the South Pacific—economic growth faces persistent challenges stemming from limited scale, heavy reliance on agriculture, and high vulnerability to natural disasters. Against this backdrop, the role of the financial system has become increasingly significant. This study employs a Vector Autoregression (VAR) model, combined with Impulse Response Function (IRF) and Variance Decomposition (VDC) analysis, to examine the dynamic relationships between economic growth, agricultural value added (AVA), and financial development (FD) from 1980 to 2022. The results reveal that: (i) shocks from AVA exert a positive but short-lived effect on GDP; (ii) financial shocks have strong and lasting impacts on both GDP and AVA, while GDP also responds substantially to FD; and (iii) variance decomposition underscores the dominant role of credit in explaining growth fluctuations, far exceeding the contribution of the primary sector. These findings suggest that although agriculture continues to play a crucial social role, Vanuatu’s macroeconomic growth dynamics increasingly depend on financial development. Policy implications highlight the need to expand inclusive credit, particularly targeting rural and agricultural sectors, while simultaneously fostering non-agricultural industries to diversify the economy.

Keywords: Economic Growth; Agricultural Value Added; Financial Development; Credit and Growth

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