The Long-run Effects of HIV/AIDS in Kenya

This essay analyzes the long-run economic effects of HIV/AIDS in Kenya, with emphasis on fertility, education and child labor. Human capital, which is built up through formal education and parental child-rearing, is the only input in production. Two aspects are central to the analysis: First, a mature AIDS epidemic causes massive premature adult mortality, thereby destroying existing human capital and reducing the labor force on a large scale. Second, the transmission of human capital to future generations is weakened, as children are left orphaned and surviving adults are correspondingly burdened. As a consequence, per capita income decreases and communities can less afford to raise and educate children as they did before the outbreak of the disease. The underlying theoretical model, in which it is assumed that parents raise and educate children for both financial and altruistic reasons, is calibrated using data for the period 1920 to 2000. The long-run effects of the disease, which depend heavily on parents' expectations about future mortality rates, are estimated for the years 2000-2040. Both human capital and per capita income grow significantly more slowly after the outbreak of the epidemic, while the incidence of child labor doubles for some periods. The level of fertility falls in the immediate aftermath of the outbreak, but can be significantly higher when the epidemic has reached a mature phase, depending on parents' expectations. Governmental interventions in the health sector in the early phase of the epidemic can strongly mitigate its adverse effects.