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The Macroeconomic Impact of AIDS in Sub-Saharan Africa

By Mead Over
Population and Human Resources Department

The World Bank
June, 1992

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Abstract

This paper estimates the macroeconomic impact of AIDS on the Sub-Saharan economies by projecting the growth trajectories of 30 countries with and without the AIDS epidemic over the period 1990 - 2025. The paper defines the "impact" of the epidemic to be the difference between the trend growth rates with and without AIDS. If the only effect of the AIDS epidemic were to reduce the population growth rate, it would increase the growth rate of per capita income in any plausible economic model. The central question addressed by this paper is whether the specific characteristics of the AIDS epidemic would be sufficient to reverse this prediction, such that per capita income growth would be negative rather than positive. The characteristics examined here are the effect of the epidemic on savings and the distribution of the epidemic by productivity class of worker, which the paper calls the "socio-economic gradient” of the epidemic.

The paper shows that an AIDS epidemic can reduce the growth rate of per capita income in the average country even when it is evenly distributed across productivity classes of workers, provided at least 50% of treatment costs are extracted from savings. Either raising the percentage of treatment costs financed from savings or biasing the epidemic toward the more productive workers increases the negative impact on per capita growth and the two combined effects interact to produce an even larger impact - especially on the ten countries with the most advanced epidemics. For the most plausible assumptions, that 50% of the treatment costs are financed out of savings and that each education class of workers has double the risk of the one beneath it, the net effect of the AIDS epidemic on the growth of per capita GDP is a reduction of about a third of a percentage point in the ten countries with the most advanced epidemics. This is a substantial impact in countries that have been struggling to escape from a period of negative growth rates.

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