AIDS Crisis and Growth

We investigate an OLG economy where an AIDS epidemic influences human capital accumulation and growth through the creation of large numbers of orphans. We study how intrafamily allocations regarding school and work time of children are adjusted in the face of AIDS within a family, and how, in turn, these adjustments influence accumulation of physical and human capital. We compute the aggregate effects of an AIDS epidemic on human and physical capital accumulation and growth. We find that growth effects of an AIDS epidemic are large. Some policies such as subsidization of AIDS medication have relatively small effects. Corresponding Author: Gerhard Glomm, Department of Economics, Wylie Hall, Indiana University, Bloomington, IN 47405, phone: 812-855-7256, e-mail: [email protected]. We are grateful to very insightful and useful comments by two anonymous referees. We also thank Daiji Kawaguch, Te-Fen Lo and Facundo Sepulveda for helpful comments. All remaining errors are our own.