Aids, Human Capital and Growth

Abstract

We use an overlapping generations model of human capital accumulation to study the impact of the AIDS crises on growth. In our model, the AIDS crisis lowers life expectancy and thus the incentive to save and accumulate physical capital. Moreover, the AIDS crisis lowers the returns to human capital investment by creating large numbers of AIDS orphans. We calibrate the model to sub-Saharan economies. If infection rates are around 15-20 percent of the adult population, as they are in countries like Zambia and Botswana, growth rates of per capita income drop about 30-40%. Moreover, the growth rate effects persist beyond the (perhaps counterfactual) end of the AIDS crisis.

Keywords: AIDS, Growth

JEL Classification: O11, I12