Trade liberalization, economic growth and welfare in Guinea-Bissau: a CGE modeling

This paper examines the macroeconomic, sectoral and welfare impacts of trade liberalization policies based on import tariffs (scenario 1), partial export tax (scenario 2) and complete export tax (scenario 3) reductions in Guinea-Bissau using a dynamic computable general equilibrium model from 2022 to 2036. GDP grows at approximately 1.6%, 0.03% and 0.28% in scenarios 1–3, respectively. Scenario 1 provokes a reduction in the foreign input prices in the domestic market, boosting investment demand. In scenarios 2 and 3, the export improvement allows for the accumulation of trade gains, which are reinvested particularly in non-traditional sectors. The demand for labor increases by about 5.4% to 8.2%, 0.61% to 6.8% and 5.4% to 8.3%, respectively, as sectoral production expands. At the household level, the impact of the results varies across different settings and quantile levels. In both scenarios, urban households benefit more than rural counterparts with the same initial income level. However, reducing import tariffs has a more pronounced effect on the income and consumption of poor individuals, suggesting the potential of trade liberalization to enhance long-term welfare in a developing country.