DP4800 | Growth and Epidemic Diseases

Publication Date

23/12/2004

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Abstract

We study the formation of human capital and its transmission across generations when a society is assailed by an epidemic disease such as AIDS. We establish that the disease can severely retard economic growth, even to the point of leading to an economic collapse. We also show that the epidemic may exacerbate inequality. Pooling health risks in the society puts the society on a ?make and break? road.