THE GIFT OF THE DYING: THE TRAGEDY OF AIDS AND THE WELFARE OF FUTURE AFRICAN GENERATIONS

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THE GIFT OF THE DYINGTHE TRAGEDY OF AIDS AND
THE WELFAREOF FUTURE AFRICAN GENERATIONS

• By Alwyn Young
• Presenters Marisha Tardif
• Levan Bzhalava

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World Situation About HIV/AIDS
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Adults and children living with
HIV/AIDSEstimated at end of 2001
Source www.weforum.org/pdf/Initiatives/GHI_HIV_DC
SA_AppendixE.pdf
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Estimated number of adults and children newly
infected with HIV during 2001
Source www.weforum.org/pdf/Initiatives/GHI_HIV_DC
SA_AppendixE.pdf
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Estimated adult and child deaths from HIV/AIDS
during 2001
Source www.weforum.org/pdf/Initiatives/GHI_HIV_DC
SA_AppendixE.pdf
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Cumulative number of children estimated to have
been orphaned by AIDS at age 14 or younger at the
end of 1999
Source www.weforum.org/pdf/Initiatives/GHI_HIV_DC
SA_AppendixE.pdf
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South Africa
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BACKGROUNDERThe 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.

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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.

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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

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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

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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
• ?i - share of each factor in total income.

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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.

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Data

• 1995 - South African October Household Survey
  (OHS)
• 1998 - Demographic and Health Survey (DHS)

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Two-Step Estimation Process

• Two step
• 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.

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Regression

1. Interval regression
2. Poison model
3. Ordered probit

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• Female labor supply is more elastic than
  mens
• Every 1 increase in wages, male labor supply
  rises .17 and female labor supply rises .44.

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Calibration

• Evolution and behavioral impact of the AIDS
  epidemic.
• Assume a Cobb-Douglas production function in
  capital and effective labor

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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

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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 childrens education is
  interrupted at the time of their parents death.

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Explanation

• 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.
• 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.

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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 childrens 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

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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.
• 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

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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

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• AIDS has a profound impact on workers and
  their families, enterprises and national
  economies.

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Critique of the article

• The authors 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.
• The paper is silent on possible relationships
  between decreased population and a potential
  shortage of labour skills, which is an important
  aspect in a modern economy.
• 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.
• Population without AIDs 110 million. versus
  Population with AIDS 50 million. The cost to the
  economy of loosing 60 million people is enormous
  in a consumer-oriented society but not in a
  producing-oriented society. However, production
  costs may increase, which will have a negative
  impact on competitiveness and deter investment.
• We must also know the effect on the total
  demography how are the age groups distributed?

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Supplementary sources

• 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
• Dr Clifford Panter, Dr Andrea Knigge, Mr Mike
  Folan The DAIMLERCHRYSLER HIV/AIDS Program in
  South Africa www.weforum.org/pdf/Initiatives/GHI_
  HIV_DCSA_AppendixE.pdf