The Economic Impact of

HIV and AIDS

Cosmas MusumaliEAZ Discussion

6th May, 2010

1. Some EstimatesGDP growth decreases by over 1% for every

10% HIV prevalence. Southern Africa: GDP losses estimated

between 0.9-2.8%Southern Africa: GDP losses over 25

years equate to 35% current GDP

2. Economic Transmission Channels

The production channelThe allocation channelThe distribution channel The regeneration channel

The Production Channel

HIV/AIDS affects the main factors of production - labour and capital - causing the production process to be less fruitful than it would have been in the absence of HIV/AIDS.

The Allocation Channel

One of the most important functions of the economic system is to ensure an efficient allocation of resources.

HIV/AIDS reroutes some of those resources

to medical expenses and away from other productive uses.

The Distribution ChannelHIV increases health expenditures and

weakens the income base.The lowest income groups fare the worst.

Often the only productive asset is own labour, which HIV attacks

The upper income groups are better placed to protect themselves and afford treatment.

Thus, HIV widens the gap between different social strata.

The Regeneration ChannelThis refers to investments in human capital,

physical capital and new technology that are needed to keep the economy growing

HIV compromises the saving capacity and the human capital of the economy

Therefore, HIV undercuts the process of economic development

So what???Productivity enhancement (HIV

mainstreaming)Efficiency: HIV funding (cost-effectiveness,

technical and cost-efficiency, creating future industries)

Distribution: Social support (e.g. conditional transfers for health and education)

Regeneration: Incentives for savings and human capital formation

Endnote

For each 1 year increase in life expectancyThe per capita income grows by 4%