Independent research & practical ideas for global prosperity

The Long-Run Economic Costs of AIDS: New Results for Kenya

Sep 28, 2004

Shantayanan Devarajan, Chief Economist for South Asia Region at the World Bank presented his paper, The Long-Run Economic Costs of AIDS: New Results for Kenya . The paper discusses the loss in human capital due to HIV/AIDS. CGD President Nancy Birdsall was the discussant.

Most existing estimates of the macroeconomic costs of AIDS, as measured by the reduction in the growth rate of GDP, are modest. For Africa—the continent where the epidemic has hit the hardest—they range between 0.3 and 1.5 per cent 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. We 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; for the children of AIDS victims will be left without one or both parents to love, raise and educate them. The outbreak of AIDS leads to an increase in premature adult mortality, and if the prevalence of the disease becomes sufficiently high, there may be a progressive collapse of human capital and productivity.