AIDS, Economic Growth and the Epidemic Trap in Africa

Most studies find that AIDS has a relatively weak impact on economic growth because they assume that it affects only one flow variable and only in the short term (the flow of labour available and capable of working at a time t in the economy). But AIDS also has a long-term impact on stock variables that existing models do not take into account, specifically, on both human and physical capital. Integrating these two impacts in a growth model with multiple accumulation factors reverses the findings of standard impact evaluations. A fairly wide range of epidemic effects modifies the economy's long-term growth regime, creating what we might call an epidemic or regressive “trap”. Government action should be designed in view of this risk and should intervene preferentially in favour of human capital, through health and educational spending. Finally, this model changes the cost-efficiency calculations about expanding antiretroviral therapies to a large part of the working population and indicates that such treatment is substantially more cost-efficient than initially thought.