1 / 19

The Economic Impact of HIV/AIDS

The Economic Impact of HIV/AIDS. Shanta Devarajan. How HIV/AIDS affects the economy. Labor supply (e.g., South African labor force expected to decline by 12.8 percent by 2010) But: a 13 percent decline in labor supply reduces GDP by only 8 percent or so, implying that GDP per capita rises.

yetta-terrell
Download Presentation

The Economic Impact of HIV/AIDS

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Economic Impact of HIV/AIDS Shanta Devarajan

  2. How HIV/AIDS affects the economy • Labor supply (e.g., South African labor force expected to decline by 12.8 percent by 2010) • But: a 13 percent decline in labor supply reduces GDP by only 8 percent or so, implying that GDP per capita rises

  3. How HIV/AIDS affects the economy (cont’d) • Productivity losses (absenteeism, retraining workers, death benefits) • Estimated to add upto 15 percent to companies’ wage bill (South Africa, Cote d’Ivoire) • But: Large companies especially are able to adapt, reducing productivity losses

  4. How HIV/AIDS affects the economy (cont’d) • Public finances • Increased health expenditures, reducing public investment • Reduces GDP growth • But: Assumes that public investment would have been productive

  5. Previous estimates of theimpact of AIDS on GDP growth (%)

  6. How HIV/AIDS affects the economy (cont’d) • Human capital • AIDS kills young adults • Reduces incentive and means to invest in children’s education • Reduces parents’ transmission of knowledge to their children

  7. Implications • Children’s ability to invest in their children’s education is lower, and so on… • Vicious cycle • Previous estimates of impact of AIDS may seriously underestimate the long-run impact

  8. Overlapping-generations model Λt = family’s human capital at t s=state of family (father dies, mother dies, etc.) z(s)Λt(s) = transmission of knowledge from parents to children e=amount of education Then: Λt+1 = z(s)Λtf(e) + 1

  9. Overlapping generations model (cont’d) Note that e is the result of the family solving : Max EU (ct, Λt+1) s.t. y=α[Λt + 2(1-e)] Increase in probability of premature adult mortality lowers both Λt and Λt+1

  10. South Africa: Probabilities

  11. South Africa: Probabilities

  12. Effect of AIDS (with pooling)

  13. Effect of AIDS

  14. Policy responses • Spend on public goods to reduce premature mortality • Need additional spending of 3-4% of GDP per year to restore growth • Lump-sum subsidies to families • Modest growth restored • School-attendance subsidies • Rapid growth restored

  15. Kenya: Probability of premature adult mortality

  16. Kenya

  17. India • Overall prevalence rate <1% • BUT: Six states have generalized epidemics (>1% prevalence reported in prenatal clinics) • In one of these states (Tamil Nadu), percentage of truckers paying for sex rose in 2002 (to 21%) • Only 37% of them used condoms • In Orissa, 61% of women have never heard of AIDS

  18. Conclusion • AIDS is different from other diseases since it affects young adults • Economic impact of AIDS is not just on this generation, but the next, whose education will suffer • Economic costs can be huge, and felt many years from now • Early and strong action can reduce these costs

More Related