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Library The Long-run Economic Costs of AIDS : Theory and an Application to South Africa

The Long-run Economic Costs of AIDS : Theory and an Application to South Africa

The Long-run Economic Costs of AIDS : Theory and an Application to South Africa

Resource information

Date of publication
April 2014
Resource Language
ISBN / Resource ID

Most existing estimates of the
macroeconomic costs of AIDS, as measured by the reduction in
the growth rate of gross domestic product, are modest. For
Africa-the continent where the epidemic has hit the
hardest-they range between 0.3 and 1.5 percent annually. The
reason is that these estimates are based on an underlying
assumption that the main effect of increased mortality is to
relieve pressure on existing land and physical capital so
that output per head is little affected. The authors argue
that this emphasis is misplaced and that, with a more
plausible view of how the economy functions over the long
run, the economic costs of AIDS are almost certain to be
much higher. Not only does AIDS destroy existing human
capital, but by killing mostly young adults, it also weakens
the mechanism through which knowledge and abilities are
transmitted from one generation to the next. The children of
AIDS victims will be left without one or both parents to
love, raise, and educate them. The model yields the
following results. In the absence of AIDS, the
counterfactual benchmark, there is modest growth, with
universal and complete education attained within three
generations. But if nothing is done to combat the epidemic,
a complete economic collapse will occur within three
generations. With optimal spending on combating the disease,
and if there is pooling, growth is maintained, albeit at a
somewhat slower rate than in the benchmark case in the
absence of AIDS. If pooling breaks down and is replaced by
nuclear families, growth will be slower still. Indeed, if
school attendance subsidies are not possible, growth will be
distinctly sluggish. In all three cases, the additional
fiscal burden of intervention will be large, which
reinforces the gravity of the findings.

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Authors and Publishers

Author(s), editor(s), contributor(s)

Bell, Clive
Devarajan, Shantayanan
Gersbach, Hans

Data Provider
Geographical focus