Death, Diamonds, and the Botswana Paradox

Warren C. Sanderson, State University of New York at Stony Brook

"The Botswana Paradox" is the coexistence in Botswana at the end of the 1990's both of the highest AIDS death rate in the world and one of the world's highest rates of real per capita income growth. The key to understanding what happened is in the structure of the Botswanan economy. In order to see which structural features matter the most, I have constructed a small general equilibrium model of the Botswanan economy, which captures its main features and merged it with new projections of the Botswanan population. The amazing growth of the Botswanan economy in the late 1990's was mainly due to an increase in revenues from mineral exports, and the increase of the number of people with secondary schooling or more in the labor force. HIV has no impact on mineral export revenues, but will reduce the growth rate of the more educated portion of the labor force.