- Optimism on the impact of Aids on South Africa would
be "unconscionable", according to the three authors of a World
Bank study on the impact of Aids in the country.
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- In their report -- The Long-run Economic Costs of Aids:
Theory and an Application to South Africa -- Clive Bell, Shantayanan Devarajan
and Hans Gersbach state that South Africa could face progressive economic
collapse within several generations unless it combats its Aids epidemic
more urgently.
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- The South African National Treasury disagreed with this
assessment and said several other studies, including earlier World Bank
reports, show a far milder impact.
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- Most existing estimates of the macroeconomic costs of
Aids, as measured by the reduction in the growth rate of GDP, are modest.
For Africa -- the continent where the epidemic has hit the hardest -- they
range between 0,3% and 1,5% annually. The reason is that these estimates
are based on an underlying assumption that the main effect of increased
mortality is to relieve pressure on existing land and physical capital
so that output per head is little affected.
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- The authors argue that this emphasis is misplaced and
that, with a more plausible view of how the economy functions over the
long run, the economic costs of Aids are almost certain to be much higher.
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- "Not only does Aids destroy existing human capital,
but by killing mostly young adults, it also weakens the mechanism through
which knowledge and abilities are transmitted from one generation to the
next; for the children of Aids victims will be left without one or both
parents to love, raise and educate them," the authors state.
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- To analyse this problem, they developed an overlapping
generations (OLG) model, in which parents have preferences over current
consumption and the (expected) human capital attained by their children.
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- Two family structures are analysed: 'nuclear' and 'pooling',
where under the latter all children are cared for within an extended family.
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- The decision about how much to invest in education, said
the report, is influenced by premature adult mortality in two ways: first,
the family's lifetime income depends on the adults' health status, and
second, the expected pay-off depends on the level of premature mortality
among the children when they attain adulthood.
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- Furthermore, if one or both parents die while their offspring
are still children, the transmission of knowledge across generations is
weakened. The outbreak of Aids leads to an increase in premature adult
mortality, and if the prevalence of the disease becomes sufficiently high,
there may be a progressive collapse of human capital and productivity.
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- The policy problem, asid the report, is to avoid such
a collapse. The instruments available for this purpose are: spending on
measures to contain the disease and treat the infected; aiding orphans,
in the form of either income-support or subsidies contingent on school
attendance; and taxes to finance these expenditures.
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- When calibrated for South Africa, the model yields the
following results. In the absence of Aids, the counterfactual benchmark,
there is modest growth, with universal and complete education attained
within three generations.
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- If nothing is done to combat the Aids epidemic, however,
a complete economic collapse will occur within three generations. With
optimal spending on combating the disease, and if there is pooling, growth
is maintained, albeit at a somewhat slower rate than in the benchmark case
in the absence of Aids.
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- If pooling breaks down, and is replaced by nuclear families,
growth will be slower still. Indeed, if school-attendance subsidies are
not possible, growth will be distinctly sluggish.
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- In all three cases, the additional fiscal burden of intervention
will be large, which reinforces the gravity of the findings.
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- The central conclusions of the paper are; first, that
the Aids epidemic will peak far in advance of the economic damage it will
ultimately cause, and second, the scale of that damage -- in terms of accumulated
losses in GDP per capita -- will also be large. This applies even if the
measures designed to combat the disease and to ensure the education of
half and full orphans are well chosen and the fiscal means employed to
finance them are highly efficient.
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- In the absence of such measures, an economic collapse
is on the cards. -- I-Net Bridge
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- http://www.mg.co.za/Content/l3.asp?ao=17699&t=1
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