THE IMPACT OF AIDS ON INCOME AND HUMAN CAPITAL

Authors

  • PEDRO CAVALCANTI FERREIRA,

    1. Ferreira: Graduate School of Economics, Fundação Getulio Vargas, Praia de Botafogo 190, 1125, Rio de Janeiro, RJ 22253-900, Brazil. Phone 55-21-37995840, Fax 55-21-25538821, E-mail ferreira@fgv.br
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  • SAMUEL PESSÔA,

    1. Pessôa: Graduate School of Economics, Fundação Getulio Vargas, Praia de Botafogo 190, 1125, Rio de Janeiro, RJ 22253-900, Brazil. Phone 55-21-37995840, Fax 55-21-25538821, E-mail pessoa@fgv.br
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  • MARCELO RODRIGUES DOS SANTOS

    1. Dos Santos: Graduate School of Economics, Fundação Getulio Vargas, Praia de Botafogo 190, 1125, Rio de Janeiro, RJ 22253-900, Brazil. Phone 55-21-37995840, Fax 55-21-25538821, E-mail msantos@fgvmail.br
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    • A first version of this paper was partially written when P.C.F. was visiting the University of Illinois at Urbana-Champaign. He would like to thank the hospitality of the Department of Economics and Steve Parente, Werner Baer, Frank Shupp, the editor, and two anonymous referees for their helpful comments. The authors acknowledge the financial support of CNPq-Brazil and FAPERJ. M.R.D.S also acknowledges the financial support of CAPES.


Abstract

This paper studies the impact of HIV/AIDS on per capita income and education. It explores two channels on how HIV/AIDS affects income that have not been sufficiently stressed by previous literature: the reduction of the incentives to stay in school due to shorter expected longevity and the reduction in productivity of experienced workers. In the model, individuals live for three periods, may get infected in the second period, and with some probability die of AIDS before reaching the third period of their lives. Parents care for the welfare of the future generations so that they will maximize lifetime utility of their dynasty. The simulations predict that the most affected countries in Sub-Saharan Africa in the future will be, on average, 30% poorer than they would be without AIDS. Schooling will decline in some cases by 40%. These figures are dramatically reduced with widespread medical treatment, as it increases the survival probability and productivity of infected individuals. (JEL O11, I12, C15, O55)

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