Accumulation of physical capital this would in turn

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accumulation of physical capital, this would in turn reduce the returns to human capital. Incorporating the Impact of HIV/AIDS into a Large-Scale Macroeconomic Model Several studies have analyzed the impact of HIV/AIDS in South Africa using more complex macroeconomic models. A study commissioned by ING Barings South African Research (2000) emphasizes the impact of HIV/AIDS on the labor force (distinguishing among four skill levels), on productivity (through absenteeism and illness), on production costs, and on the demand for health services. They predict that the labor supply (weighted by skill level) will decline by 12.8 percent by 2010 and that real GDP will decline by 3.1 percent compared with a scenario without AIDS, implying a substantial increase in per capita income. 38 Arndt and Lewis (2001), using a 15-sector computable general equilibrium model, draw on 76 M ARKUS H AACKER 38 This substantial increase in income per capita appears to stem from a decline in unem- ployment and an increase in aggregate demand (in per capita terms).
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the same demographic projections used in the ING Barings study. They project that GDP per capita will decline by 8 percent by 2010, relative to a no-AIDS scenario, and that domestic absorption, excluding food, medical services, and HIV/AIDS-related government expenditure, will fall by 13 percent. BER (2001) focuses on the epidemic’s effects on the overall pop- ulation and the labor force, the direct and indirect costs to private busi- nesses, and government and household expenditure. The study projects that GDP growth will decline by between 1.4 and 1.8 percentage points between 2002 and 2015, and that GDP growth per capita will increase by 0.7 to 1.0 percentage points over the same period. Empirical Studies Several studies have attempted to evaluate the impact of HIV/AIDS on economic growth empirically, with mixed results. An early study by Bloom and Mahal (1997), using data through 1992, finds an insignificant link between growth of GDP per capita and cumulative AIDS cases for a cross section of 51 countries. Bonnel (2000) finds that HIV/AIDS may affect growth of GDP per capita both directly and through its impact on policy institutions. He reports that, in the 1990–97 period, increased HIV preva- lence was associated with a decline in growth of GDP per capita. For a country with an HIV prevalence rate of 15 percent, for example, he postu- lates a decline in growth of GDP per capita of 1 percent. Using panel data from 41 African countries between 1960 and 1998, Dixon, McDonald, and Roberts (2001) find a significant effect of HIV/AIDS on “health capital” (as measured by life expectancy), but no significant impact of health cap- ital on growth. In interpreting these empirical studies, it is important to bear in mind two principal shortcomings. First, it is generally not possible at this stage of the epidemic to distinguish whether the observed changes in the growth rate of GDP per capita (if any) reflect long-term changes or changes in the level of steady-state GDP per capita associated with a temporary change in GDP growth as the economy adjusts to the new equilibrium. For example,
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