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The Economic Impact of HIV/AIDS

The Economic Impact of HIV/AIDS. Shanta Devarajan. Key features of HIV/AIDS. Affects more than the victim Affects multiple sectors of the economy Requires resources to fight the disease. Households. Loss of income Productivity loss

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The Economic Impact of HIV/AIDS

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  1. The Economic Impact of HIV/AIDS Shanta Devarajan

  2. Key features of HIV/AIDS • Affects more than the victim • Affects multiple sectors of the economy • Requires resources to fight the disease

  3. Households • Loss of income • Productivity loss • Tea pickers in Kenya earned 17 percent less in the two years before they retired or died from AIDS • Earnings loss (absenteeism) • Sick sugar mill workers in South Africa lost 10 percent of earnings two years before retirement

  4. Households: effect on others • Caregivers: South Africa (Survey of 771 AIDS households) • Two-thirds are women • 22 percent took time off from work • 20 percent had to forgo school or study time • 60 percent took time from other housework

  5. Key features of HIV/AIDS • Affects more than the victim • Affects multiple sectors of the economy • Requires resources to fight the disease

  6. Households: effect on others • Orphans (as share of pop’n 17 and under) 2003 (due to AIDS) 2010 Botswana 20 15 24 South Africa 13 4.5 19 • Lower incomes (higher dependency ratios) • Lower school enrolment rates (13 percent)

  7. Key features of HIV/AIDS • Affects more than the victim • Affects multiple sectors of the economy • Requires resources to fight the disease

  8. Households: effect on other sectors • Health care costs (South Africa study) • AIDS households spend 33 percent of income on health care (compared with national average of 4 percent) • Funeral costs (four months’ salary)

  9. Firms: effect on other sectors • Medical costs (25-35 percent of total) • Sick leave, productivity loss, training (20 percent of total) • Pension costs • Companies may find it profitable to introduce AIDS prevention and treatment plans, as well as revise their pension plans • Large companies more likely than smaller ones

  10. Key features of HIV/AIDS • Affects more than the victim • Affects multiple sectors of the economy • Requires resources to fight the disease

  11. Macroeconomic costs • 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

  12. Macroeconomic costs (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

  13. Macroeconomic costs (cont’d) • Public finances • Increased health expenditures, reducing public investment • Reduces GDP growth • But: Assumes that public investment would have been productive

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

  15. Macroeconomic costs (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

  16. 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

  17. South Africa: Probabilities

  18. South Africa: Probabilities

  19. Effect of AIDS (with pooling)

  20. Effect of AIDS

  21. Key features of HIV/AIDS Affects more than the victim Affects others sectors Requires resources Economic impact of HIV/AIDS Common metric to evaluate impact on different people, sectors Behavioral response Measure of how much to spend on fighting AIDS Build political support Can economics help fight AIDS?

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