On the Economic Impacts of Investment in Road Construction and Maintenance: New Applied CGE Analysis for Guinea‐Bissau

A general equilibrium externality approach is developed to model the economic outcomes of road construction and maintenance investment funded through government savings/debt in Guinea‐Bissau from 2014 to 2030, equivalent to 1% of current Chinese investment in this country. The model is calibrated using sector elasticities and a social accounting matrix (SAM) that includes informal activities. Additionally, workers and households are categorized as rural or urban, allowing for a flexible analysis of the investment's implications for low‐income and high‐income individuals by setting. A 1% increase in public investment in roads generates productive externalities that enhance productivity growth and influence capital accumulation and reinvestment in sectors not initially targeted by the policy. Transportation costs and intermediate input prices fall in local agricultural production markets, increasing the return on investment in these sectors. Households' income and consumption increase, but food prices decrease, which benefits the urban and rural low‐income groups the most. Chinese investments should be reallocated to competitive sectors capable of increasing value added and contributing to job and income generation.