Modeling the Macroeconomic Impact of HIV/AIDS

IMF Working Papers, November 1, 2002

Source details

Addresses the impact of HIV/AIDS on per capita output and income.
Emphasizes the role of labor mobility between the formal and informal sectors.
Examines the impact of the epidemic on investment decisions.
Analysis of the impact on output is complemented by an assessment of the impact on income.

HIV/AIDS affects both the supply of labor and the demand for labor in the formal sector.
Only if there is a significant rise in the capital-labor ratio will there be an increase in formal sector employment.
An increase in the capital-labor ratio is associated with a decline in the rate of return to capital.
If companies respond to a decline in the rate of return to capital by reducing investment, conventional models underestimate the adverse impact on:
- employment,
- per capita output,
- income.

Models that omit firms’ investment responses to changes in the rate of return to capital will understate the macroeconomic costs of HIV/AIDS.
Incorporating labor mobility between formal and informal sectors is essential for accurate assessment of employment effects.
Complementary assessment of income impacts is necessary in addition to output effects.

Subjects: Capital productivity, Health, HIV and AIDS, Labor, National accounts, Personal income, Production, Unemployment, Unskilled labor
Keywords: Africa, Capital Mobility, Capital productivity, closed-economy model, dual economy, dual economy setting, dual-economy model, Economic Growth, HIV and AIDS, HIV/AIDS, Personal income, savings rate, Sub-Saharan Africa, Unemployment, Unskilled labor, WP

Source: IMF Working Papers — "Modeling the Macroeconomic Impact of HIV/AIDS", Markus Haacker, November 1, 2002.

Modeling the Macroeconomic Impact of HIV/AIDS - WP/02/195
- Modeling the Macroeconomic Impact of HIV/AIDS - WP/02/195 (Markdown version)
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