HIV/AIDS and Development: A Reappraisal of the Productivity and Factor Accumulation Effects

International audienceBesides 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 morbidity 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 inducedhealth 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 occurseven when the prevalent HIV rate is low. In contrast, the consequences of HIV/AIDS on human capital accumulation have been more rarely treated. In particular, its impact on schoolingtime n generally omitted in the macroeconomic literature. Ferreira, Pessôa, and Dos Santos (2011) is an exception. The inherent mechanism is known as the Ben Porath mechanism (Ben Porath 1967): a downward trendin life expectancy following mortality shocks 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 ofendogenous 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 capitalaccumulation; the latter may collapse not only because of the massive increase in health expenditures undermining savings as in the early literature but also via this indirect mechanism. Bothchannels are taken into account by Freire (2004) in her analysis of saving behavior in South Africa after the outbreak of the HIV/AIDS crisis