The paper addresses the impact of HIV/AIDS on per capita output and income, with particular emphasis on the role of labor mobility between the formal and informal sectors, and the impact of the epidemic on investment decisions. The study finds that HIV/AIDS affects both the supply of labor and the demand for labor in the formal sector. Only if there is a significant rise in the capital-labor ratio, will there be an increase in formal sector employment. However, this is associated with a decline in the rate of return to capital. To the extent that companies respond to this by reducing investment, conventional models underestimate the adverse impact on employment, per capita output, and income. The analysis of the impact of HIV/AIDS on output is complemented by an assessment of the impact on income.

Robalino, Jenkins, and El Maroufi develop a model of optimal growth to assess the risks of an HIV/AIDS epidemic and the expected economic impact in nine countries in the Middle East and North Africa region--Algeria, Djibouti, Egypt, Iran, Jordan, Lebanon, Morocco, Tunisia, and Yemen. The model incorporates an HIV/AIDS diffusion component based on two transmission factors--sexual intercourse and exchange of infected needles among intravenous drug users. Given high levels of uncertainty on the model parameters that determine the dynamics of the epidemic and its economic impact, the authors explore large regions of the parameter space. The prevalence rates in year 2015 would be below 1 percent in 16 percent of the cases, while they would be above 3 percent in 50 percent of the cases. On average, GDP losses across countries for 2000-2025 could approximate 35 percent of today's GDP. In all countries it is possible to observe scenarios where losses surpass today's GDP. The authors quantify the impact of expanding condom use and access to clean needles for intravenous drug users. They show that these interventions act as an insurance policy that increases social welfare. They also show that delaying action for five years can cost, on average, the equivalent of six percentage points of today's GDP. This paper--a product of the Human Development Group, Middle East and North Africa Region--is part of a larger effort in the region to raise awareness about the social and economic cost of HIV/AIDS. David Robalino may be contacted at [email protected].

This paper analyzes the macroeconomics of HIV/AIDS. The paper highlights that the mortality and morbidity associated with AIDS make it unlike most other types of sickness and disease. The paper describes the most common approaches used in accounting for growth in the context of an HIV/AIDS epidemic. The impact of HIV/AIDS on education and the accumulation of human capital is discussed. The paper also discusses the impact of HIV/AIDS on the public sector, and elaborates certain demographic events specific to the HIV/AIDS pandemic.

Robalino, Jenkins, and El Maroufi develop a model of optimal growth to assess the risks of an HIV/AIDS epidemic and the expected economic impact in nine countries in the Middle East and North Africa region - Algeria, Djibouti, Egypt, Iran, Jordan, Lebanon, Morocco, Tunisia, and Yemen. The model incorporates an HIV/AIDS diffusion component based on two transmission factors - sexual intercourse and exchange of infected needles among intravenous drug users. Given high levels of uncertainty on the model parameters that determine the dynamics of the epidemic and its economic impact, the authors explore large regions of the parameter space. The prevalence rates in year 2015 would be below 1 percent in 16 percent of the cases, while they would be above 3 percent in 50 percent of the cases. On average, GDP losses across countries for 2000-2025 could approximate 35 percent of today's GDP. In all countries it is possible to observe scenarios where losses surpass today's GDP. The authors quantify the impact of expanding condom use and access to clean needles for intravenous drug users. They show that these interventions act as an insurance policy that increases social welfare. They also show that delaying action for five years can cost, on average, the equivalent of six percentage points of today's GDP.This paper - a product of the Human Development Group, Middle East and North Africa Region - is part of a larger effort in the region to raise awareness about the social and economic cost of HIV/AIDS. David Robalino may be contacted at [email protected].