Select Committee on International Development Written Evidence


Memorandum submitted by Simon Dixon[13], Scott McDonald[14] and Jennifer Roberts[15]

  1.1  We recently undertook a preliminary investigation of the impact of HIV/AIDS on economic growth. The research used panel data econometrics to estimate a well-established theoretical model for the growth of GDP per capita. The model was extended to include the effect of health capital (and consequently HIV/AIDS) on GDP growth.

  1.2  Despite widespread concern with the effects of the virus, estimates of the impact of HIV/AIDS on economic growth and performance are sadly lacking. There is even less information available on the macro-economic costs and benefits of different government policy responses, the implications for government budgets and the sectoral and income distribution effects.

  1.3  It is essential to study the economic impact of HIV/AIDS since deteriorations in economic performance are likely to compound the social and human effects and reduce the capacity of countries to counter the worst effects of the epidemic.

  1.4  The impact of HIV/AIDS on economic growth is an empirical question. Theory suggests the epidemic will reduce productive efficiency, and hence output per worker, reduce the rate of growth of the labour force and lower the savings rate. This may cause per capita income and the capital labour ration to either increase or decrease, because the labour force and savings rates effects operate in opposite directions in the model.

  1.5  Existing empirical findings are seriously compromised by data limitations and a poor understanding of the virus in developing countries up to the mid-1990s, which led to prevalence estimates typically one seventh to one fifth of those now produced by UNAIDS.

  1.6  The main source of data for this research is the World Bank Global Development Finance and World Development Indicator databases. Data on HIV prevalence were obtained from UNAIDS. The results reported here use crudely derived estimates of the prevalence of HIV between the year of first report and 1997. These will be revised when the embargo on more recent HIV estimates from UNAIDS expires.

  1.7  The data set has a panel structure covering 104 countries (developed and developing) for the time period 1960 to 1998 with data for HIV prevalence, incomes, and physical education and health capital.

  1.8  Health capital is proxied by life expectancy and life expectancy is in turn affected by the material standard of living in a country, health care provision and the incidence of diseases—the most significant of which is HIV/AIDS. In this way HIV/AIDS determines economic growth indirectly through both its impact on population growth and its impact on health capital.

  1.9  Exploratory data analysis shows that those countries with the highest HIV prevalence rates show substantial downturns in recorded life expectancy (usually in the mid- to late-1980s). Notable exceptions include South Africa and Swaziland.

  1.10  Econometric estimates indicate life expectancy, the proxy for health capital, has had a substantial and significant positive impact on the growth of GDP per capita.

  1.11  Econometric estimates indicate that the impact of HIV/AIDS on life expectancy has been significant and negative.

  1.12  Data problems and some model specification issues require that these empirical results must be qualified.


  1.13  The results reported here provide empirical support for the arguments that HIV/AIDS is having an impact upon macro-economic performance in developing countries.

  1.14  The growth equations confirm the importance of life expectancy and physical capital investment to recorded economic performance, and thereby support the argument that the economic implications of the epidemic deserve close and careful consideration.

  1.15  The pronounced impact of HIV/AIDS prevalence on life expectancies suggest that the epidemic may now be entering what has been termed stage 6, where the loss of life is starting to impact appreciably upon social indicators and especially upon life expectancies. This implies that the economic impact of the epidemic may accelerate.

  1.16  The analyses point up a number of data issues. There is a need to improve the reliability of education capital data, and additional information of the prevalence of life threatening diseases and the provision of health care services is needed.

  1.17  Further research should be directed at providing a greater understanding of the mechanisms through which health, and particularly HIV/AIDS, impacts on national economies. This research should recognise the differential sectoral impact of the disease and provide a greater understanding of the mechanisms by which sustained epidemics impact upon economic performance.

Simon Dixon, Scott McDonald and Jennifer Roberts
June 2000

13   Lecturer in Health Economics, School of Health and Related Research, University of Sheffield. Back

14   Lecturer in Economics, Department of Economics, University of Sheffield. Back

15   Lecturer in Health Economics, School of Health and Related Research, University of Sheffield. Back

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