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Consumption Smoothing and HIV/AIDS: The Case of Two Communities in South Africa

Tuesday, February 13, 2007 - 12:00pm to 1:30pm

Center for Global Development presents a brown bag seminar on
Consumption Smoothing and HIV/AIDS:
The Case of Two Communities in South Africa

Sebastian Linnemayr
Paris School of Economics and University Aix-Marseille II

Sebastian is a Ph.D. candidate at Paris School of Economics and University Aix-Marseille II

Tuesday, February 13, 2007
12:00 p.m. – 1:30 p.m.
Center for Global Development
1800 Massachusetts Avenue, NW, Third Floor, Washington, D.C.

Paper Abstract: HIV/AIDS threatens to overstretch the already frail informal safety nets in countries heavily affected by the epidemic. Worn-down safety nets make it difficult for non-affected households as well as for those with an HIV-infected member to keep up appropriate consumption levels when experiencing shocks. Affected households may in addition face exclusion from informal insurance networks due to widespread stigmatization, thus depriving them of their main coping mechanism in a time of increased health expenditure and income loss. Surprisingly, the resilience of informal networks to HIV-induced shocks and their questionable worth for affected households in particular have not been empirically tested to date. Using three years of a novel panel data set from two poor South African communities experiencing HIV related illnesses and deaths, I investigate the ability of households to insure their consumption. Based on the finding that affected as well as non-affected households adjust their food expenditure in reaction to income changes, the benchmark hypothesis of full insurance is rejected. An additional negative effect is observed for HIV-affected households who smooth food consumption at the expense of regular spending, thereby undermining their future capacity to cope with shocks. Furthermore, as not all households in the sample experience adult mortality during the observation period, our results suggest that HIV/AIDS has a negative economic impact even before death, the focus in the current literature. These novel findings contribute towards our understanding of the complex economic effects of the epidemic, adding to the much-needed empirical foundation for the proper design of support mechanisms for households affected by HIV/AIDS.

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