American Economic Review: Papers & Proceedings 2016, 106(5): 472–477
http://dx.doi.org/10.1257/aer.p20161112
HIV/AIDS and Development: A Reappraisal of the Productivity
and Factor Accumulation Effects†
By Théophile T. Azomahou, Raouf Boucekkine, and Bity Diene*
Besides the dreadful direct effects, enduring
epidemics like HIV/AIDS induce much more
subtle effects in the economy, principally via
labor productivity and factor accumulation.
Concerning the former, the impact of morbid-
ity on effective labor has been recognized and
accounted for since the early work of Over
(1992) and Cuddington and Hancock (1994).
The impact of mortality shocks on savings,
and therefore on factor accumulation, has also
been documented in this early literature, with an
emphasis on the detrimental role of the induced
health expenditures. Recently, Asiedu, Jin, and
Kanyama (2015) show that HIV/AIDS has a
negative but diminishing effect on foreign direct
investment (FDI), and this adverse effect occurs
even when the prevalent HIV rate is low. In con-
trast, the consequences of HIV/AIDS on human
capital accumulation have been more rarely
treated. In particular, its impact on schooling
time has been generally omitted in the macro-
economic literature. Ferreira, Pessôa, and Dos
Santos (2011) is an exception. The inherent
mechanism is known as the Ben-Porath mech-
anism (Ben-Porath 1967): a downward trend
in life expectancy following mortality shocks
* Azomahou: UNU-MERIT, Maastricht University
and CERDI, Boschstraat 24, 6211 AX Maastricht,
The Netherlands (e-mail: azomahou@merit.unu.edu);
Boucekkine: Aix-Marseille University (AMSE), CNRS
and EHESS, 2 rue de la Charité, 13002 Marseille, France
(e-mail: raouf.boucekkine@univ-amu.fr); Diene: CERDI,
65 Boulevard F. Mitterrand, 63009 Clermont-Ferrand,
France (e-mail: bity.diene@udamail.fr). We gratefully
acknowledge insightful discussions with Elizabeth Asiedu.
This work was supported by the FERDI (Fondation pour les
Etudes et Recherches sur le Developpement International)
and the Agence Nationale de la Recherche of the French
government through the program “Investissements d’avenir
ANR-10-LABX-14-01.”
†
Go to http://dx.doi.org/10.1257/aer.p20161112 to visit
the article page for additional materials and author disclo-
sure statement(s).
472
reduces the profitability of schooling, leading to
a decline of human capital accumulation in the
medium and long run. Boucekkine, de la Croix,
and Licandro (2002) have proposed a theory of
endogenous growth based on the Ben-Porath
mechanism. Notice also that the same essential
argument (that shorter time horizons discourage
investment) can be applied to physical capital
accumulation; the latter may collapse not only
because of the massive increase in health expen-
ditures undermining savings as in the early liter-
ature but also via this indirect mechanism. Both
channels are taken into account by Freire (2004)
in her analysis of saving behavior in South Africa
after the outbreak of the HIV/AIDS crisis.
This paper proposes a reappraisal of the eco-
nomic growth cost of HIV/AIDS accounting,
among others, for Ben-Porath-type effects on
labor productivity and factor accumulation. We
use an economico-epidemiological Solow-Swan
model. Mortality and morbidity effects on effec-
tive labor are taken into account. The Ben-Porath
mechanism affects the dynamics of the saving
rate and reduces labor productivity (which is a
useful shortcut to the decline of human capital
accumulation). The main contribution of the
paper is the application to South Africa. Based
on optimal projections of the demographic
(including HIV prevalence rates) and economic
(including saving rates, based on the work of
Freire 2004) South African series for the period
2000–2050, two main and novel findings are
presented. First, we identify a delayed effect of
HIV/AIDS on economic growth: the growth rate
gap between the AIDS and no-AIDS scenarios is
rather stable between 2010 and 2020, but then it
increases sharply between 2020 and 2030, keeps
increasing at a much lower pace between 2030
and 2040, and finally stabilizes after 2040. Most
of the related papers (e.g., Ferreira, Pessôa, and
Dos Santos 2011; or Corrigan, Glomm, and
Mendez 2005), based on comparative statics
VOL. 106 NO. 5 HIV/AIDS AND DEVELOPMENT
of steady state equilibria, cannot deliver such a
picture. Second, we identify the impact of the
different demographic mechanisms; in partic-
ular, we find that while the fall in active pop-
ulation is the main factor behind the AIDS
impact on economic growth during the decade
2020–2030, the Ben-Porath mechanism on labor
productivity seems more relevant in the last
decade, physical capital accumulation playing a
minor role.
I. The Economico-Epidemiological Model
The framework is a Solow-Swan model in the
tradition of Cuddington and Hancock (1994).
The aggregate production function at time t is
given by
Y (t) = A (t) K(t) θ E(t) 1−θ,
where Y (t) denotes the total output (or GDP) of
the economy, A (t) the total factor productivity
(TFP,) K (t) the physical capital, and E (t) the
effective labor, θ being the capital share. E (t)
is age-structured and gender-structured as it
should be since epidemics do not affect all age
and gender classes in the same way:1
(1) E (t) = ∑[1 − ϕi, f (t) xi, f (t)] %i, f (t) Li, f (t) ,
i, f
where i stands for the age index, f = 1, 2 the
gender class, and Li, f (t) is labor services provided
by individuals of age class i and gender f.
%i, f (t) captures labor-specific productivity for
age class i and gender f , and in this sense, it
could be interpreted as a human capital indicator.
xi, f (t) reflects morbidity at age class i and
gender f ; a larger xi, f (t) amounts to a lower
effective labor effort due to morbidity. Finally,
the production function includes a term ϕi, f (t) ,
which stands for the AIDS prevalence rate at
date t for age class i and gender f. In the no-AIDS
case, the prevalence rates are set to zero and E (t)
= ∑ i, f μi, f (t) Li, f (t) with Li, f (t) = ( pans − u ) h ,
1
We insist on dealing with gender here since a crucial
recent feature of HIV/AIDS in sub-Saharan Africa (and
notably in South Africa) is the increasing percentage of
females affected. In its 2004 report, UNAIDS mentioned
that close to 60 percent of HIV/AIDS infected people are
females in sub-Saharan Africa, the youngest being the most
exposed to the infection risk for obvious reasons.
473
where pans indicates the active population
without HIV/AIDS by age and sex, u is the
number of unemployed people by age and sex,
and h is the number of hours worked in a year.2
The basic economico-epidemiological pro-
duction function above is further extended in
two essential directions. First, the morbidity
term, xi, f (t) , is assumed to depend on health
expenditures devoted to fighting HIV/AIDS.
Accordingly, for given AIDS-specific health
expenditures mi, f (t) , xi, f (t) is determined by
xi, f (t) = Φ(mi, f (t)),
where function Φ ( · ) is decreasing. This is
largely consistent with Corrigan, Glomm, and
Mendez (2005), who argued that health expen-
ditures improve the productivity of the infected
people. In contrast to the latter work, where
health expenditures are determined by individ-
ual choices, we shall use real health expendi-
tures data. In the implementation, we have faced
a data unavailability problem. Instead of the
intended indicators Φ(mi, f (t)) , we have been
forced to use Φ(m (t)) , where m (t) is given by
the relation: m (t) = txHIV _ t M
where txHIV
HIV +
represents the percentage of AIDS-related
expenditures in the total health expenditures
(Mt), and HIV + is the number of infected people.
As in Corrigan, Glomm, and Mendez (2005),
we pick the following analytical for Φ ( · ):
ζ
(2) Φ(m (t)) = 1 − ψ1 + (ψ1 − ψ0) _ ,
m (t) + ζ
with: Φ (0) = 1 − ψ0 , limx→∞ Φ (x) = 1 − ψ1 ,
0 < ψ0 < ψ1 < 1 , Φ′(x) < 0, and Φ′′(x) > 0;
ψ1 , ψ0, and ζ are positive productivity
parameters.3
Second, we introduce the Ben-Porath effect
and model it as follows. We start with the tradi-
tional modeling of age and gender specific pro-
ductivity (see Cuddington and Hancock 1994):
(3) %i, f (t) = ρ1 + ρ2(i − i ) − ρ3(i − i ) ,
– – 2
2
We use 49 weeks and 40 hours by week, that is
h = 1960.
3
In our numerical experiments, we fix ψ1 = 1 , ψ0 = 0.5 ,
and we let ζ vary from 1 to 10 , with ζ = 5 in the reference
simulation, as in Corrigan, Glomm, and Mendez (2005).
474 AEA PAPERS AND PROCEEDINGS
where ρk , k = 1, 2, 3 and i are given positive
–
constants, the last being, for example, the min-
imal age to work. Productivity is an inverse
U-shaped function of age, maximal productiv-
ρ2
ity being reached at age i + 2 _
–
. With a declin-
ρ3
ing life expectancy, such a magnitude is likely
to go down, not only mechanically but also via
the Ben-Porath mechanism, according to which
a decreasing life expectancy lowers schooling
time, and therefore human capital and produc-
tivity at work. We capture this mechanism by
assuming the following functional relationship:
(4) ρ2 ≡ ρ2(i, f, t) = αi, f νi, f (t) β,
where νi, f (t) is the life expectancy at birth of
workers of age i (thus born at t − i) and of gen-
der f. αi, f and β are calibrated on real data. For
the calculation of ρ2 , we set for the reference
year t = 0 , which corresponds to the year 2000,
in the data, ρ2(i, f, t0) = αi νi, f (t) β = 0.005 for a
given β , then we calibrate αi = _ 0.005
, taking the
νi, f (t)
β
life expectancy series from the data. The deter-
mination of αi allows us to determine the ρ2.4 β
is given values ranging from 0 (no Ben-Porath
mechanism) to 1 (a “linear” mechanism). The
setup is completed by a capital accumulation
equation:
(5) K (t) = s (t) Y (t) + (1 − δ) K (t − 1) ,
where s (t) stands for the saving rate of the econ-
omy at date t and with the initial stock K0 given.
Cuddington and Hancock (1994) take the sav-
ing rate constant but retrieve a term xH (t) from
the right-hand side of equation (5), where H (t)
stands for total health expenditures, and x is the
fraction of these expenditures related to HIV/
AIDS. As correctly pointed out by Bloom and
Mahal (1997), health expenditures might be not
only detrimental to savings but also to consump-
tion (see a recent exploration into this import-
ant issue in Azomahou et al. 2015). To deal
with this crucial criticism, we use the general
dynamic equation above with the saving rate
4
We set the values of the other parameters as follows:
ρ1 = 0.8 , ρ3 = − 0.0001.
MAY 2016
series constructed by Freire (2004) for South
Africa under the AIDS and no-AIDS scenario
as the basis of our calibration and forecasting in
this respect. Freire’s model closely follows Galí
(1990), a Blanchard-Yaari type of model, which
is more likely to capture the effects of increas-
ing mortality on saving decisions than the arbi-
trary computation rule adopted by Cuddington
and Hancock (1994). It is worth pointing out
that since the saving rate is not constant in our
setting, there is no long-run steady state (and
the inherent standard comparative statics) as in
Ferreira, Pessôa, and Dos Santos (2011).5
II. Application to South Africa
A. Data and Variables
The variables used include: (i) Economically
active population, by age and sex (1980–2020);
(ii) HIV-seroprevalence (1980–2015); (iii)
HIV + (1990–2015) indicator; (iv) Life expec-
tancy at birth by sex (1920–2015); (v) Total
health expenditure (1960–2000); (vi) Percentage
expenditure of AIDS in total health expenditure
(1960–2000); (vii) Unemployed by age and
sex (2000–2003); (viii) GDP per capita (1960–
2000); and (ix) Saving rates with and without
AIDS. See the online Appendix for further
details of these indicators and related sources.
B. Estimation Strategy
Our estimation includes forecasting and the
projection of HIV prevalence. The forecast-
ing needs first the estimation of the parame-
ters of an assumed econometric specification
underlying the data generating process. The
estimation-forecasting method is applied to
all relevant variables of our model except HIV
prevalence, which is a specific epidemiological
5
In our application, assuming an exogenously growing
1
__
( γ E2000 ) .
TFP at rate γ , K0 is computed by K0 = K2000 = _
Y2000 θ
0 1−θ
The physical capital K (t) series is then obtained thanks to
the standard accumulation equation (5) with the saving rate
series constructed from Freire (2004). Moreover, to make
our results comparable with earlier findings, we use the same
parameter values as Corrigan, Glomm, and Mendez (2005):
θ = 0.33 , γ = 0.012, and δ = 0.05.
VOL. 106 NO. 5 HIV/AIDS AND DEVELOPMENT 475

variable. To obtain the projected HIV preva- Panel A

lence, we fit a double logistic curve of the form 58
Actual mlifex
Median forecasts
56 95% confidence bands

[1 + e ] [1 + e ]
α(t−τ) −β(t−τ) 54
(6) p (t) = e
_
α(t−τ)
ae
_
β(t−τ)
+ b , 52
50
48
46
where α is the initial growth rate, a denotes the 44
peak value, β is the rate of convergence, b is the
2000 2010 2020 2030 2040 2050 2060

final prevalence level, and τ shifts the whole

curve backward. The value of α is chosen so that
Panel B
mlifex forecast kernel density
for observation 2015
the doubling time is 1.5 years. The latter is cho- 6 N(s = 0.102)
sen so that the doubling time at the beginning of 5
the epidemic can be ln (2) /α. This means that 4
α = ln (2) /1.5. As a result, for a given β , we 3
have to find (numerically) the parameters a , b, 2
and τ solution of the nonlinear system defining 1
0
the starting and the ending periods as well as the 47.2 47.3 47.4 47.5 47.6 47.7 47.8 47.9
peak of the epidemic. See the online Appendix
for details. Figure 1. Forecasts: Life Expectancy at Birth, Male

Notes: mlifex is our abbreviation for male life expectancy at

III. Results birth. Panel A vertical axis is male life expectancy in years.
Panel B displays the distribution of the forecast in panel A;
A. Selected Forecasting Results the vertical axis is the density estimate and the horizontal
axis is the life expectancy.
We have generated several projections for
the key variables of the model for time hori-
zons approaching 2050.6 Figures 1 and 2 depict
respectively our forecasts of life expectancy at
birth with AIDS for males and economically Panel A
active population with AIDS for females. The 1,100
figures display both the median forecast and 1,000
900
the density estimate of the forecasted values. 800
The forecasts for life expectancy at birth dis- 700 Actu al eapf1
600 Median forecasts
play nonlinear patterns. However, there is a 500 95% confidence bands
400
clear decreasing trend for both over the whole 1950 1970 1990 2010 2030 2050 2060
horizon, 1990 to 2050. The declining trend is
sizable, and could not be omitted in any serious
long-run analysis of AIDS. Mortality shows up Panel B
clearly in the declining patterns of the active 0.03
0.025
population: Figure 2 shows indeed the dreadful 0.02
medium and long-run demographic impact of 0.015
AIDS, a marked decline especially after 2020. 0.01
0.005
0
500 600 700 800 900 1,000

eapf1 forecast kernel density for observation 2010

N(s = 774)

Figure 2. Forecasts: Economically Active Population

6
In some cases, we use the procedure to extend previ-
ous forecasts available for shorter horizons to 2050. This is
the case of saving rate forecasts: Freire’s forecasts extend to
2015; we take as given and then we use the optimal forecast-
ing procedure to go beyond 2015. See the online Appendix
for details.
with HIV/AIDS, Female
Notes: eapf1 is our abbreviation for economically active
population of females. Panel A vertical axis shows the num-
ber of eapf1s in thousands; panel B vertical axis is the den-
sity estimate and the horizontal shows the number of eapfls.
476 AEA PAPERS AND PROCEEDINGS MAY 2016

Table 1—Growth Rates of GDP Per Capita: Gap the yearly growth rate of GDP per capita, which
between the AIDS and No-AIDS Scenarios for Varying
ζ and β
is considerable. Our distinctive contribution
is in the timing of the growth effect after the
β= 1 incorporation of the most likely medium and
ζ 1 2.5 5 10 long-run demographic trends induced by AIDS.
Incidentally we show that there might not be any
2010 0.86 0.86 0.87 0.89
2020 0.89 0.89 0.89 0.89 conflict between the results obtained by authors
2030 2.78 2.78 2.78 2.78 like Bloom and Mahal (1997), and others like
2040 3.18 3.18 3.18 3.18 Corrigan, Glomm, and Mendez (2005): a rel-
2050 2.84 2.84 2.84 2.84 atively short term assessment as in the former
β = 1/2
might not reveal any dramatic AIDS growth
effect, while a medium or long term perspective,
2010 0.85 0.85 0.86 0.89 relying on demographic dynamics and those
2020 0.88 0.88 0.88 0.88
2030 2.72 2.72 2.72 2.72
of human capital, might deliver the opposite
2040 3.02 3.02 3.02 3.02 message.
2050 2.74 2.74 2.74 2.74
C. Robustness Check
β= 0
2010 0.83 0.84 0.85 0.87 We conduct two kinds of sensitivity analysis.
2020 0.86 0.86 0.86 0.86 First, we allow the coefficient β to vary taking
1
2030 2.65 2.65 2.65 2.65 the values 1 , _
2
, and 0. See the online Appendix
2040 2.87 2.87 2.87 2.87
2050 2.65 2.65 2.65 2.65 for additional sensitivity parameters results. The
second sensitivity analysis concerns function
Φ(m (t)) (relation 2). We allow ζ to vary from 1
to 10 for each value of β. The results are given
in Table 1.
B. The Economic Growth of AIDS Quantified A first conclusion should be that the varia-
tion of parameter ζ of the health expenditures
To start with a benchmark case, let us set function does not generally change the first two
β = 1. Table 1 gives the results for different decimals of the obtained growth per capita gap
values of the health expenditures productivity figures. The same type of findings is reported by
parameter ζ. Corrigan, Glomm, and Mendez (2005). Much
Consider the case ζ = 5. One can see that the more importantly, and not surprisingly, the gap
gap in growth of GDP per capita does not move figures increase with the sensitivity parameter β .
significantly between 2010 and 2020. From A comparison between the polar cases β = 0
2020 to 2030, the gap rises sharply from 0.89 and β = 1 is useful. In the first case (and ζ = 5),
percent to 2.78 percent, which translated into the gap jumps from a 0.65 percentage point
annual rates means that AIDS causes GDP per in 2020 to 2.65 percentage points in 2030,
capita to decline by 0.19 percent in the period rises slightly to 2.87 in 2040, before coming
2020–2030, while such a decline is around 0.09 back to the 2030 level in 2050. When β = 1 ,
percent in 2000–2010 for example. Accordingly, the size of the jump between 2020 and 2030
the growth impact of AIDS in 2020–2030 more is naturally bigger, but the difference is even
than doubles compared to 2000–2010. The gap larger in 2040: the difference between the two
keeps increasing from 2030 to 2040, it reaches gaps is about 0.13 in 2030, it is more than the
3.18 percent in 2040 but at a lower pace. Finally, double (equal to 0.31) in 2040. Therefore,
the gap shrinks to 2.84 percent at 2050 mainly while the fall in active population is the main
due to HIV/AIDS prevalence rates’ values at factor behind the impact of AIDS on growth
this horizon. during 2020–2030, the Ben-Porath mecha-
Our figures for the growth gaps are a bit nism seems more relevant in the last decade.
lower than those put forward by Over (1992) Both demographic factors are consequently
for the ten most affected sub-Saharan African key to understanding the medium and long-run
countries for the period 1990–2025. In our case, economic growth effects of AIDS in our
the growth gap may be close to 0.2 percent for scenarios.
VOL. 106 NO. 5 HIV/AIDS AND DEVELOPMENT
IV. Conclusion
We have constructed an economico-
epidemiological Solow-Swan model for the eco-
nomic impact of HIV/AIDS. We account for the
productivity effect of morbidity, the Ben-Porath
effect on productivity, and the impact of mor-
tality on physical capital via saving dynamics.
The model enhances the following evidence
for South Africa: while a relatively short term
assessment might reveal no dramatic growth
effect of AIDS, the medium- or long-run impact
can be truly sizable. In particular, we show that
the most painful period for economic growth is
the decade 2020–2030, where the gap between
the AIDS and non-AIDS scenarios becomes
deepened. This finding is mainly due to the
(slow) demographic dynamics resulting from
the epidemic shock and the delayed negative
productivity effects, the role of physical capital
accumulation being minor.
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