Friday, August 29, 2008

Impacts of HIV/AIDS on Economic Development

In 2000, the United Nations created a list of 8 Millennium Development Goals to help promote economic growth and development among developing countries. One of these goals is to combat HIV/AIDS by stopping and reversing its spread and providing universal access to drugs for those infected. While this is definitely a worthwhile goal, why is it included among a list of targets to support growth? Well it turns out, that the impact of HIV/AIDS on the economy can be substantial.

The first immediate effect of HIV is a drop in household productivity as the working members of the household succumb to the disease. One study by UNAIDS estimated that household production could drop anywhere between 30%-60% due to an AIDS death in the family. Another study from the Ivory Coast examined what implications this could have on other aspects of the families’ lives. It was estimated that “families with a member sick from AIDS cut spending on their children's education in half and reduced food consumption by about 40 percent as they struggled to cover health expenditures that soared to four times their usual level.” Unfortunately this leads to a vicious cycle as these countries are often already experiencing higher malnutrition rates and lower education levels.

Individual companies will be affected by high levels of HIV as well. Not only will the actual amount of workers decline due to more AIDS deaths, but their quality of work will also decline due to ill-health and increased absenteeism. Companies will incur direct costs in order to hire and train new workers. Additionally, due to an inexperienced work force, productivity will decrease and the potential for accidents will increase. Finally, as AIDS deaths increase in number, employees will experience a loss of morale and labor cohesion.

These losses in household and company productivity have important implications for the national economy. One important indicator for development is domestic savings and investment. Households that are able to save money are better able to start their own business or finance their education in the future. Additionally, companies that invest in new plants or equipment can grow at a faster rate. However, with high levels of HIV, households are forced to spend more money on healthcare and companies have less to invest due to higher costs and lower productivity. As a result, the country experiences a much lower rate of growth.

Government expenditures will also be affected by HIV. Tax revenues will drop as companies and households are earning less money. At the same time, the government will be increasing health expenditures to help those affected by AIDS. With less revenues being generated and a higher percentage being spent on healthcare, government programs to promote infrastructure and growth will diminish in quantity and quality.

Economists have developed models that predict the growth domestic product (GDP) both with and without HIV/AIDS. Most of these models indicate a rather small drop, on the order of 0.5% to 1% per year. While this may seem small, when this drop is compounded over many years, the impacts can be substantial. One study estimated that due to HIV’s extensive impact on the economy, expenditures on HIV prevention would be 17 times more effective at promoting development than similar expenditures on capital investment. As a result, slowing the spread of HIV and treating those with AIDS will be an integral part of any development plan.

This is Ben Young, thanks for listening.

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