The Impact of HIV/AIDS on Poverty and Inequality

Most studies on the economic impact of HIV/AIDS focus on such variables as GDP growth or income per capita. Early studies, incorporating the impact of HIV/AIDS in a one-sector neoclassical growth model, found that although the impact of HIV/AIDS on GDP growth is substantial, the impact on GDP per capita may well be small. Later studies refined this approach, for example by considering a larger number of sectors, including some demand-side effects, or allowing for an impact of changes in life expectancy on individuals’ decisions.1 However, these studies provide little information about how changes in income are distributed among the population. Empirical studies and more casual evidence show that HIV/AIDS does have a serious adverse effect on the households it strikes, through the costs of care (both financial costs and the opportunity cost of otherwise productive time reallocated to care) and loss of income. Other households may provide support to households affected directly or may take care of children whose parents have fallen ill or died. More generally, HIV/AIDS affects all households through its macroeconomic repercussions, for example through changes in wages, and these macroeconomic effects may also differ among households. In light of these facts, the average change in income per capita contains very little information that is relevant from a policy perspective.