Article

Research: HIV/AIDS Increases Income Inequality

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
June 2006
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Economic development is associated with broad improvements in health standards. For example, higher income facilitates improvements in health services, and improved nutrition translates into better health and higher productivity. Analyzing the implications of the HIV/AIDS pandemic in four sub-Saharan African countries, a new IMF Working Paper finds that the disease affects households unevenly and has significant implications for poverty and inequality.

To understand the economic implications and policy challenges associated with a health crisis such as HIV/AIDS, it is important to address its microeconomic effects, as well as its macroeconomic and fiscal consequences. Increased morbidity, or mortality, reduces living standards directly and also implies risks to material living standards associated with medical expenses, the loss of income, and reduced access to education.

Lost income

To examine these issues, the study uses data from household expenditure surveys and demographic and health studies to simulate the impact of HIV/AIDS on poverty and inequality in Ghana, Kenya, Swaziland, and Zambia. With mortality stemming from HIV/AIDS concentrated among the working-age population, it is the income-earning members of a household who are most likely to die (see top table). Yet the death of an economically active person also means that jobs and business opportunities arise for others. Thus, although some households lose family members (and income), others may benefit by finding employment.

Life and death

HIV/AIDS largely affects the working-age population and is lowering life expectancy.

IndicatorGhanaKenyaSwazilandZambia
HIV prevalence, ages 15-49, end-20052.36.133.417.0
Crude death rate, 20051.11.62.72.3
AIDS-related0.10.51.60.8
Life expectancy at birth, 1985-9056595749
Life expectancy at birth, 2000-0557473337
Note: HIV prevalence and crude death rates are shown in percent, life expectancy in years.Data: UNAIDS, 2006, 2006 Report on the Global AIDS Epidemic; and United Nations Population Division, 2004, World Population Prospects: The 2004 Revision.
Note: HIV prevalence and crude death rates are shown in percent, life expectancy in years.Data: UNAIDS, 2006, 2006 Report on the Global AIDS Epidemic; and United Nations Population Division, 2004, World Population Prospects: The 2004 Revision.
Uneven effects on poverty

HIV/AIDS has a greater effect on poverty in Ghana than in the other three countries.

IndicatorGhanaKenyaSwazilandZambia
(percentage points)
Change in poverty rate1.62.79.87.0
Change in Gini coefficient0.61.85.35.2
(normalized estimate1
Change in poverty rate3.82.01.62.2
Change in Gini coefficient1.51.40.81.7

Scaled estimates, assuming an HIV prevalence rate of 5 percent across countries. Data: Authors’ calculations.

Scaled estimates, assuming an HIV prevalence rate of 5 percent across countries. Data: Authors’ calculations.

Even if HIV/AIDS has only a small effect on GDP per capita, the study finds that it can nonetheless have a substantial impact on poverty for two main reasons. First, higher mortality increases mobility (both upward and downward) in income distribution; overall, this translates into a rise in inequality. Second, HIV prevalence tends to be high in households vulnerable to falling into poverty, thereby exacerbating the impact of HIV/AIDS on poverty beyond what would be expected from any changes in average per capita income.

Moreover, the findings underscore the importance of analyzing the socioeconomic profile of the epidemic. For example, controlling for the level of HIV prevalence, the impact of HIV/AIDS on poverty rates appears much stronger in Ghana than in the other countries considered, reflecting both a higher share of the population at risk of falling into poverty and relatively high HIV prevalence rates for this population group (see bottom table).

Overall, the study finds that, because the impact of HIV/AIDS is very uneven across households, the epidemic has substantial implications for the extent of poverty and inequality. A broad macroeconomic assessment of the impact of HIV/AIDS (or any other health crisis), focusing on GDP per capita, masks those distributional aspects and thus fails to capture many of its welfare effects.

Markus Haacker

IMF African Department

This article is based on IMF Working Paper No. 06/126, “HIV/AIDS: The Impact on Poverty and Inequality,” by Gonzalo Salinas and Markus Haacker. Copies are available for $15.00 each from IMF Publication Services; see page 192 for ordering details. The full text is also available on the IMF’s website (www.imf.org).

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