Transcript Slide 1

THE GIFT OF THE DYING:
THE TRAGEDY OF AIDS AND THE
WELFARE
OF FUTURE AFRICAN GENERATIONS
By Alwyn Young
Presenters: Marisha Tardif
Levan Bzhalava
World Situation About
HIV/AIDS
Adults and children living with HIV/AIDS
Estimated at end of 2001
Estimated number of adults and children
newly infected with HIV during 2001
Estimated adult and child deaths from
HIV/AIDS during 2001
Cumulative number of children estimated
to have been orphaned by AIDS at age 14
or younger at the end of 1999
South Africa
•
BACKGROUNDER
The
effects
of
AIDS
HOUSEHOLD LEVEL• The impacts of reduced income combined with the costs
of taking care of an infected person.
• Children may be forced to leave school in order to
provide care or generate income.
• Less money is available for consumption.
• LABOUR MARKET
• There is a reduction in productivity due to factors
such as absenteeism and high turnover.
• Change in labour force and labour participation.
• Due to the high turnover rate, there are higher costs
for companies due to training and recruitment costs.
BACKGROUNDER
•
•
CONSUMER MARKET
• The absolute number of consumers will be
reduced.
• The structure of demand will also change.
GOVERNMENT LEVEL
• Increased demand on government services and
assistance.
• Weakening institutional capacity.
• The fiscal burden of the disease.
•
SOCIAL IMPACT
• Increased demand for health care, and welfare services also
suffer due to high demand.
• Reduction in demand for education which leads to a less
educated population. In short, lower investment in physical and
human capital.
Model: Becker and Solow
Household behavior in the Beckerian tradition
n - quantity of children
q - the "quality" of children (measured by their human capital)
lm, lf - Individual leisure
Cm – material consumption
Model: Becker and Solow
Household utility function
LM - Male Labor Supply
LF - Female Labor Supply
Household utility is given simply by total consumption
expenditures minus the disutility of labor
Model: Becker and Solow
If labor supply is of the isoelastic form
per capita utility is then given by:
y - output per capita;
s - savings rate;
Ѳi - share of each factor in total income.
Model: Becker and Solow
• For constant savings rates and factor shares,
this justifies the fixation on output per capita
as a measure of welfare.
• Following Solow - assume that the savings rate
remains fixed by some combination of private
and public sector behavior.
Data
• 1995 - South African October Household
Survey (OHS)
• 1998 - Demographic and Health Survey (DHS)
Two-Step Estimation Process
Two step:
1. Estimate incomes as a function of age, sex
and education, and then use the predicted
relative incomes by educational attainment
as the independent variable in the household
behavioral equations. (OHS)
2. By exogenous variation in individual
education levels the price elasticity in each
demand equation is identified.
Regression
1. Interval regression
2. Poison model
3. Ordered probit
Female labor supply is more elastic than
men’s:
Every 1% increase in wages, male labor supply
rises .17% and female labor supply rises .44%.
Calibration
• Evolution and behavioral impact of the AIDS
epidemic.
• Assume a Cobb-Douglas production function
in capital and effective labor:
Simulation
• The author uses a simulation to demonstrate what would happen
when certain criteria are changed. He presents five different
scenarios.
1- HIV- most realistic scenario
2-NO HIV- a situation without the HIV virus, so very unlikely
The next three scenarios are with HIV, however assume that
improvements are possible.
3-No Becker
4-No Fertility
5-Full Education
Explanation of Simulations
• NO HIV- the path taken if the epidemic did not occur
• HIV- the economy under the HIV epidemic
• NO BECKER-the path taken with the epidemic, but with no
endogenous response to changes in wages, i.e. all education,
fertility and participation decisions by educational class kept at their
values along the No HIV path.
• NO FERTILITY- Same as the No Becker scenario, but with the
added dimension that HIV does not have the negative effect on
fertility estimated.
• FULL EDUCATION- The HIV path, however without the assumption
that children’s education is interrupted at the time of their parent’s
death.
Explanation
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NO HIV- the wage initially declines, as better educated young age groups pressure
the ratio of capital to effective workers. Eventually it begins to climb, due to higher
levels of education which in turn lead to lower fertility and consequently lower
population growth. A rise in GDP per capita. Accumulation of labour and not of
capital. Increases in educational attainment, especially for younger cohorts. This in
turn leads to an increase of effective labour per capita. Lower fertility.
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HIV- The pattern seen under the No HIV scenario is reversed. High mortality in the
first decades of the 21st century cause the wage to go up, but it does not remain
so- it comes back down as the epidemic subsides, and the labour force is allowed
to regenerate itself. It takes 60 years for the wage to return to the path dictated by
the No HIV scenario.
Explanation
• NO BECKER- Fertility does not respond to the temporarily higher wages.
This results in a steep decline in wages, which fall below the NO HIV path.
Same happens with No Fertility, in which wages decline even lower.
Neither participation, fertility or children’s education responds to the
temporarily high wages. This means that output per capita rises by less
during the wage boom and then falls well below the NO HIV path. This is
caused by large portions of the population which remain uneducated.
• NO FERT- Bleaker scenario. Reduced fertility and higher adult mortality
cause the economy to suffer, even despite the wage boom. High fertility in
an uneducated population.
• FULL EDUCATION- The high wages which the epidemic managed to bring
about sustain themselves on their own. These high wages, in turn, lead to
lower fertility and better educated children. High wages and low fertility
create higher output per capita
Table III
• FULL EDUCATION- 6.6% increase in living standards is possible.
• HIV and NO BECKER- due to an early boom, there is a relative decline in
GDP per capita. Also caused by a reduction in human capital. Still
experience an increase, however, at 5.6% and 4.3 respectively.
• NO FERT- output per capita declines immediately, and there is no boom to
invest in. 3% reduction in living standards.
• He also notes that the HIV epidemic still allows the South African economy
enough resources to not only care for victims of the epidemic, but also to
have funds left over to allocate toward raising the standard of living of
future generations.
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The result of the simulation support the fifth scenario, or full education, with
the highest percentage of lives, at 6.6%, and the cost of each patient at
$11,000. This is accompanied by higher living standards for patients.
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The point of this simulation is to demonstrate through the introduction of
certain variables, that AIDS is in fact a positive phenomenon for the African
economy, based on a production-centered economy.
“The inescapable conclusion is that the HIV epidemic has produced
an abrupt reduction in fertility, endowing future generations with
greater material resources per capita. “p.35
Recent empirical trends in the
South African economy
• During the 1990s as the epidemic spread and entered the public
consciousness, aggregate savings and capital formation have remained
remarkably steady.
• Rising parental mortality.
• School enrollment rates for the youngest age groups have not fallen, while
those of older teenagers have declined by only 5%
AIDS has a profound impact on
workers and their families,
enterprises and national economies.
Critique of the article
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The author’s simulation does not seem to take into consideration the factor
of political changes and cultural and the evolution of social norms. The latter
two are impossible to predict. These factors are difficult to simulate and
quantify.
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The paper makes use of many statistical assumptions, and some of the
statistical flaws of African nations makes it difficult to trust some equations
in the paper. There is a strong need for reliable data. A bigger reliance of
quantitative data rather than qualitative.
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Population without AIDs 110 million versus Population with AIDS 50 million.
The cost to the economy of loosing 60 million people is enormous. Also
production costs may increase, which will have a negative impact on
competitiveness and deter investment.
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We must also know the effect on the total demography; how are the age
groups distributed?
Supplementary sources
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Badcock-Walters, Peter and Franklin, Lucinda. “Socio-Economic Impact of HIV/AIDS on KwaZulu
Natal: The Management Challenge.” Health and Economics and HIV AIDS Research Division,
University of Natal.
International Finance Corporation, World Bank Group. “IFC Against AIDS: Protecting People and
Profitability.” http://www.ifc.org/ifcagainstaids
George, Gavin. “Macroeconomics & HIV/AIDS in the South African Context.” Health and
Economics and HIV AIDS Research Division.
The DAIMLERCHRYSLER HIV/AIDS Program in South Africa. Dr Clifford Panter, Dr Andrea Knigge, Mr Mike
Folan, DaimlerChrysler SA (Pty) Ltd, GTZ GmbH - Disease Control Health Promotion, The case study that
refers to this document is available at: www.weforum.org/globalhealth/cases