Trade and distribution in Guinea-Bissau: A computable general equilibrium analysis

A dynamic computable general equilibrium model is developed to analyze the distributional implications of trade liberalization in Guinea-Bissau. The model accommodates variable behavioral and social welfare functions and heterogeneous households. Although intra-group inequality has risen slightly by 0.057% due to trade liberalization, income inequality between groups has reduced by about 0.69%, and social welfare has increased. Durable goods prices remained high since they were not produced in significant quantities locally despite trade openness. This exacerbated intra-group income inequality by reducing low-income households’ accumulated wealth as their demand for durable goods rose. The study also explored the macroaggregate effects, which were positive over time. The average growth rate was about 1.38%, suggesting the potential of trade openness to improve macro and household outcomes in developing countries. Reforms in the domestic sectors, such as transport infrastructure and ports, will strengthen the economic impacts of trade openness. The implementation of such reforms and underlying challenges are equally discussed.