| Abstract: | More than 1% of people of sub-Saharan Africa aged 15-49 years are infected with HIV, with over half likely to develop AIDS in the next decade. As rates of HIV infection continue to climb, there will be staggering financial consequences to bear in the years ahead in terms of high medical treatment costs and crippled macroeconomies. The authors employ a modified Solow growth model to simulate the impact of the AIDS epidemic on output capacity and other key macroeconomic aggregates in Malawi. They compare a counterfactual no-AIDS scenario to medium and extreme AIDS projections and find that average real GDP growth over the 1985-2010 period will be 0.2-0.3 percentage points lower in the medium case and 1.2-1.5% lower in the extreme case relative to the no-AIDS case. The size of the economy by 2010 will therefore be reduced from a real GDP of 5.03 billion (constant 1985) Kwacha without AIDS to 4.81-4.77 and 3.80-3.46 billion Kwacha in the medium and extreme scenarios, respectively. |
