IfW Press Release October 4, 2006

Welfare Costs of HIV/AIDS in Eastern Europe larger than in Sub-Saharan Africa

The rapid spread of HIV/AIDS in Eastern Europe has caused welfare losses that already exceed those in Sub-Saharan Africa. This is the main finding of a new empirical study by Julia Fimpel of the Andrássy University in Budapest and Michael Stolpe of the Kiel Institute for the World Economy that has just been published as Kiel Working Paper No. 1297. 

Based on the aggregation of individual willingness-to-pay for an AIDS-free life, Julia Fimpel and Michael Stolpe calibrate an intertemporal optimization model to deter­mine the aggregate welfare losses from HIV/AIDS in 25 Eastern European countries. Assuming a discount rate of three percent, they find a total welfare loss for the whole region of 1.2 trillion US-$, approximately 16 percent of the region’s annual gross domestic product (GDP) between 1995 and 2001. For all of Sub-Saharan Africa, the best available estimate, provided by Tomas Philipson of the University of Chicago and Rodrigo Soares of the University of Maryland in a methodologically similar study, suggests a welfare loss of 800 billion US-$, or the equivalent of one year’s GDP in that region.

Julia Fimpel and Michael Stolpe note that even their own study probably under­estimates the true welfare costs of HIV/AIDS in Eastern Europe because it only includes the welfare losses from increased mortality, not the actual suffering of HIV-infected persons prior to death. Although prevalence and incidence rates diverge sharply between countries – with central Europe far less affected than the major countries in the Commonwealth of Independent States and the Baltics – the epidemic is likely to spread to all countries unless a coherent strategy of prevention and treatment is backed up by substantial increases in health care investments. 

The sheer size of this task and the international nature of the epidemic render this one of the most important current challenges for all of Europe. The authors therefore welcome the strong emphasis that the European Commission is planning to place within its 7th framework program for international research cooperation on supporting HIV/AIDS-related research networks that focus on the situation in Eastern Europe and develop strategies to fight HIV/AIDS more effectively. 

ESF-IfW-Conference on The Global Health Economy, October 04–09, 2006, on Salzau Castle

Contact:

Dr. Michael Stolpe
Tel. +49 (431) 8814-246
michael.stolpe@ifw-kiel.de