Economic integration, innovations, and sustainable growth: an empirical investigation

Abstract A particularly interesting debate in developing countries is whether international economic integration (IEI) can help those nations maximize the economic and social impact of domestic development programs. This study adds value to this debate by constructing a dynamic CGE model for Guinea-Bissau. In this model, IEI can boost investment in Research and Development (R&D). In comparison to R&D programs or economic openness alone, foreign capital maximizes the impact of government spending on supporting firm innovation: the economy grows, and employment and household income increase. Income inequality decreases as employment opportunities for the low-income population increase. However, we observe skill-based technical changes that exacerbate income inequality within the group: unlike their urban counterparts, rural migrants have difficulty finding employment. These findings have significant policy implications. Investments in R&D in the agro-industrial sector in an open economy increase added value, contributing to increased aggregate productivity and social welfare.