Friday, August 11, 2006

The true cost of AIDS

A few days ago two economists from TD Economics released an interesting report: The Economic Cost of Aids: A Clear Case for Action. The paper stresses that not enough attention is being given to the cost of AIDS on labour force participation rates. Here is an excerpt from the 14-page paper:

So what are the costs? Some studies suggest a significant, but not devastating economic cost of just a few tenths of a percentage point lost from the annual GDP growth rate – even in the developing world. But these assessments appear to be incomplete. For one, they tend to attach little importance to a reduction in the labour force. For many of these studies, the starting point is an assumption that much of the developing world has an excess supply of labour, as evidenced by very high unemployment rates and low labour force participation rates. But once, as is generally projected, some of these countries lose as much as one-quarter of their labour force – and likely the youngest and most productive quarter — such a model is questionable.
For the developed world, there is a clear economic case for attention and action outside of humanitarian motives. The potential collapse of some of these economies will deprive the world of future markets for both imports and exports. Already the world has been made worse off. Twenty years ago, Sub-Saharan Africa was a net exporter of agricultural products. The region’s share in world agricultural exports has fallen from eight per cent in the early 1960s to just two per cent currently.
The region must import more agricultural products than it exports, in spite of substantial international development assistance to date. Additionally, the developed world incurs all-too-real costs from failed states and the flow of refugees and disillusionment that emanate from them. Ultimately, the bill to provide assistance will be much greater if the human capital, government services, and infrastructure have been destroyed. Pay now or pay a LOT more later.


International aid to support the fight against HIV in the developing world amounts to approximately $8 billion U.S. dollars per year, compared with $17.3 billion spent domestically in fiscal year 2005 by the U.S. federal government. However, $13.4 billion of this – nearly 80 per cent – is spent on the care and treatment of those already infected. Another 15 per cent is spent on research, leaving less than five per cent – just $788 million a year – spent on prevention. This amounts to $2.63 per person in the U.S.

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