Life expectancy and economic growth: AIDS as a natural experiment

Abstract

The purpose of this study is to examine how life expectancy, as a measure for health, affects economic growth in Sub-Saharan Africa. Furthermore, the model specifications in this thesis include AIDS, which is assumed to have an exogenous effect on life expectancy. This effect is in turn regarded as a natural experiment for life expectancy. An econometric model, based on the Solow growth model and previous research, is constructed. The data covers 16 sample countries across Sub-Saharan Africa between the years 1990-2017. Life expectancy at birth is the variable of interest, proxying the effect of health, which is presumed to be exogenously affected by AIDS-related deaths. AIDS-related deaths is also included as a variable of interest, to investigate if the epidemic alone affected economic growth, and not solely through its assumed effect on life expectancy. Additional control variables, which are all related to economic growth, are included to minimize omitted variable bias. Results from the model show that there is indeed a statistically significant relationship between life expectancy at birth and GDP growth. However, the findings show that inference regarding the direct effect of AIDS-related deaths on the dependent variable could not be drawn, as it was estimated as insignificant. The study concludes that the reduced life expectancy, seen during the AIDS epidemic, has had a negative impact on GDP growth in Sub-Saharan Africa. Given the assumptions about AIDS exogenous effect on life expectancy, this would imply that without the negative effect of AIDS on life expectancy, the economic growth in Sub-Saharan Africa would not have been as impeded