Worldbank: Long term economic impact of HIV/AIDS more damaging than previously thought

Economic Costs of AIDS 
Long term economic impact of HIV/AIDS more damaging than previously thought 
 
July 23, 2003—A new World Bank research report warns that HIV/AIDS causes far 
greater long-term damage to national economies than previously assumed, for 
by killing mostly young adults, the disease is robbing the children of AIDS 
victims of one or both parents to love, raise and educate them, and so 
undermines the basis of economic growth over the long haul.

This suggests that a country like South Africa could face progressive 
economic collapse within several generations unless it combats its AIDS 
epidemic more urgently.

According to the new report "The Long-run Economic Costs of AIDS: Theory and 
an Application to South Africa" most studies of the macroeconomic costs of 
AIDS, as measured by reduced GDP growth rates, do not pay enough attention to 
the way in which human knowledge and potential are created and can be lost.

This is one of the key channels influencing long-term growth. In Africa, for 
example, where the epidemic has hit the hardest to date, existing estimates 
range between a modest decline of 0.3 and 1.5 percent in GDP growth annually. 
In contrast, the report argues that the costs are likely to be much higher.

"Previous estimates overlooked the impact of HIV/AIDS on children if one or 
both parents die, how they can suddenly become orphans, how they become 
vulnerable to dropping out of school, and how, in this way, the disease 
weakens the ability of today's generation to pass on its skills and knowledge 
to the next," says Shanta Devarajan, co-author of the new research findings, 
and Chief Economist of the World Bank's Human Development Network.

"In those countries facing an HIV/AIDS epidemic on the same scale as South 
Africa, for example, if nothing is done quickly to fight their epidemic, they 
could face economic collapse within several generations, with family incomes 
being cut in half."

The process whereby AIDS sharply reduces economic growth, even to the point 
of economic collapse, brings three factors together in a particularly 
devastating combination.

First, AIDS selectively destroys human capital, that is, peoples' accumulated 
life experiences, their human and job skills, and their knowledge and 
insights built up over a period of years. It is primarily a disease of young 
adults. As these infected adults become progressively sick and weak, they 
steadily lose their ability to work. Eventually, the disease kills them in 
their prime, thereby destroying the human capital built up in them over the 
years through child-rearing, formal education, and learning on the job.

Second, AIDS weakens or even wrecks the mechanisms that generate human 
capital formation. In family homes, the quality of child-rearing depends 
heavily on the parents' human capital. If one or, worse, both parents die 
while their children are still young, the transmission of knowledge and 
potential productive capacity across the two generations will be weakened. At 
the same time, the loss of income due to disability and early death reduces 
the lifetime resources available to the family, which may well result in the 
children spending much less time (if any at all) at school.

Third, the chance that the children themselves will contract the disease in 
adulthood makes investment in their education less attractive, even when both 
parents themselves remain uninfected.

With too little education and knowledge gathered from their parents, as well 
as being deprived of parental love and guidance throughout their childhood, 
the children of AIDS victims later become adults who themselves are less able 
to raise their own children and to invest in their education. The process is 
insidious, since the effects are felt only over the long-run, as the poor 
education of children today translates into low adult productivity a 
generation later, and so on. But if nothing is done, the report warns, the 
outbreak of the disease will eventually precipitate economic collapse.

"Economic analysis for practical policy-making often pays too little 
attention to the wider economic context," says Hans Gersbach, co-author and 
Professor of Economics at Heidelberg University, Germany. "We have attempted 
to go beyond conventional reasoning where the long run effects of AIDS are 
concerned. The threat of a downward spiral in levels of human capital and 
productivity when a society is assailed by an epidemic like AIDS must be a 
centerpiece of a broad macroeconomic perspective."

"This report confirms how important it is for policymakers to act swiftly and 
effectively to prevent the spread of HIV/AIDS, and to treat those with the 
disease." says the study's co-author Clive Bell, a visiting World Bank 
Research Fellow, and Professor of Economics at Heidelberg University. 
"Keeping infected people alive and well, especially parents, so they can 
continue to live productive lives and take care of the next generation, is 
not only the compassionate thing to do, but it is also vital for a country's 
long-term economic future."

The Bank is active in fighting HIV/AIDS in all regions. Over the last few 
years, it has committed US$1.6 billion in grants, loans and credits for 
HIV/AIDS programs worldwide. The Bank is especially engaged in Sub-Saharan 
Africa, where more than 29 million adults and children are infected with 
HIV/AIDS. As of July 2003, the Bank had committed more than US$800 million 
for HIV/AIDS programs in 23 African countries.

Useful Links: full text of the report:
http://www1.worldbank.org/hiv_aids/docs/BeDeGe_BP_total2.pdf
full press release:
http://web.worldbank.org/WBSITE/EXTERNAL/NEWS/0,,contentMDK:20120894~menuPK:34463~pagePK:34370~piPK:34424~theSitePK:4607,00.html



Source: Worldbank ; July 23, 2003