Journal of African Economies, 2017, Vol.

26, number 5, 607–624

doi: 10.1093/jae/ejx020
Advance Access Publication Date: 31 August 2017
Article

Income from International Commodity Price

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Windfalls and HIV Infections in sub-Saharan
Africa
Ting Ji and Faqin Lin*†
School of International Trade and Economics, Central University of Finance and Economics, China

*Corresponding author: Faqin Lin, 39 South College Road, Haidian District, Beijing 100081, China.
E-mail: linfaqin@cufe.edu.cn
†
We want to thank Professor Markus Brueckner for his help and support to the paper. Faqin Lin
acknowledges that the work is supported by National Natural Science Foundation of China
(71773148 & 71503281). The work is also supported by Program for Innovation Research in
Central University of Finance and Economics and Young Elite Teacher Project of Central
University of Finance and Economics.

Abstract
This paper examines effects of exogenous income from international commodity
price windfalls on HIV infections in a panel of sub-Saharan African countries during
the period 1985–2007. The main finding is that an increase in income leads to a sig-
nificant rise in HIV infections in autocratic countries while there is no significant
effect in democracies. Further analysis suggests that increasing urbanisation and
decreasing public health expenditure share in GDP in autocracies are the dominant
channels behind such distinct comparison. After controlling for urbanisation and
public health expenditure share, the effect of income on HIV infection rates shrinks
drastically and is statistically insignificant.

Key words: income, commodity windfall, HIV, sub-Saharan Africa, urbanisation

JEL classification: F10, F18, I12, J11, O15

1. Introduction
The HIV has infected nearly 1 in every 20 adults in the sub-Saharan African (SSA) coun-
tries, which makes up around 70% of HIV patients worldwide1; meanwhile, SSA countries
are among the poorest in the world and produce only about 1% of world output with

1 Source: ‘The Global HIV/AIDS Epidemic’, Kaiser Family Foundation, 5 August 2014. Available at:
http://kff.org/global-health-policy/fact-sheet/the-global-hivaids-epidemic/.

© The Author 2017. Published by Oxford University Press on behalf of the Centre for the Study of African Economies,
all rights reserved. For Permissions, please email: journals.permissions@oup.com.
608 Ting Ji and Faqin Lin

almost 10% of its population in 2010 (WDI, 2014). This extreme combination provides a
meaningful and content-rich background to test the impact of income on health, whether it
follows the ‘wealthier is healthier’ principle in Pritchett and Summers (1996), i.e., increasing
income helps improve health, or it complies more with the more recent differing opinions
as in Case and Deaton (2005), Ruhm (2007), and Oster (2012).
From a theoretical point of view, the effect of a change in income on the HIV infection

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rate is ambiguous. The traditional ‘wealthier is healthier’ view rests on a simple but plaus-
ible logic, i.e., higher incomes allow people to increase health-related spending, both public
and private, and reduce unhealthy behaviour, which is also applicable for analysis on HIV
infection in SSA countries (e.g., Burke et al., 2015). One very important channel of HIV
infection in SSA countries is through transactional sex, which could be broadly interpreted
as sex in exchange for money, goods, or services in the form of prostitution, ‘dating’ or
even marriage (Robinson and Yeh, 2011). A variety of researches (Clark, 2004; Swidler
and Watkins, 2007; Dinkelman et al., 2008; Robinson and Yeh, 2011; LoPiccalo et al.,
2012) has documented that the supply of transactional sex rise when faced with economic
hardship. Therefore, it is not surprising that cash transfer programmes could potentially
help to control the spread of HIV (Baird et al., 2012; de Walque et al., 2012). However,
this is only part of the story. If transitional sex is a normal or luxury good, increase in
income could also escalate its demand of sex and even the demand of risky sex activities
(Ahlburg and Jensen, 1998; Kohler and Thornton, 2012). What makes things more compli-
cated is migration. As argued in Ahlburg and Jensen (1998), migrants increase their
demand for commercial sex because of the absence of wives and absence of family monitor-
ing, etc., which suggests that increasing migration helps spread HIV (Lurie et al., 2003).
However, people migrate in front of negative economic shocks in search of work (Skoufias,
2003), but people also migrate when an economy is prosperous and involves in more trade
(Oster, 2012; Lin and Sim, 2013, 2015), which makes the effect of income on HIV infection
through the migration channel really uncertain.
To fully investigate this problem, we use the variation in an international commodity
price as an instrument for national income to prevent from potential reverse causality and
omitted variable problems, and exploit the panel structure in our dataset based on 48 SSA
countries during 1985–2007 that helps purge both time invariant cross-country heterogen-
eity and SSA wide shocks. Our instrumental variable for national income is well established
in the literature (e.g., Deaton, 1999; Brueckner and Ciccone, 2010; Arezki and Brueckner,
2012a, b). Particularly, a key characteristic of the SSA countries that makes this estimation
strategy plausible is that these countries are highly dependent on commodity exporting sec-
tor. Hence variations in international commodity prices can induce substantial variation in
real per capita GDP growth through changes in terms of trade. Because the economic size
of SSA countries (as measured by the share in world commodity production) is extremely
small (so that the country can be effectively treated as being a price taker on the inter-
national commodity market) the induced variations in per capita GDP growth will be
exogenous to variations in economic growth. Oster (2012) documents that international
goods trade could hasten the spread of HIV, and therefore in our analysis we also control
for trade openness in our regression to address this concern.
We first estimate the average effect that income from international commodity price
windfalls has on HIV infections. We find that international commodity price shocks do not
show significant influence on HIV infection. However, a close scrutiny of the results
Income from International Commodity Price Windfalls 609

suggests that while the impact of income on HIV infection is almost neutral in democracies,
it is quantitatively large and statistically significant in autocracies, making it non-negligible.
More specifically, a 1% increase in income is associated with an about 0.8% increase in the
rate of HIV infections in autocracies; in democracies the effect is quantitatively small and
statistically indistinguishable from zero. In addition, we can reject the hypothesis that the
effect of income on HIV infections is the same in democracies and autocracies. These results

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are not really unexpected: in autocracies people cannot punish their governments through
the electoral process if unhealthy living conditions persist (Acemoglu et al., 2004; Padró i
Miquel, 2007; Besley and Kudamatsu, 2008). Evidence that health condition is worse in
autocracies can be found, for example, in Besley and Kudamatsu (2008) and Kudamatsu
(2012).
In order to fully understand why income from international commodity price windfalls
increases the rate of HIV infections in autocratic SSA countries, we investigate channels
through which income could affect HIV infections. One important channel is urbanisation.
As noted in, for example, Bolnik et al. (2006), HIV prevalence in SSA countries is signifi-
cantly higher in urban areas.2 If preventative measures are not taken, the virus spreads
more rapidly in urban areas than in rural areas because of lower costs of finding sexual
partners in cities. Meanwhile, at the country level higher incomes are known to be asso-
ciated with urbanisation (Brueckner, 1990, 2012; Henderson, 2003). As people move from
the countryside to the city, where costs for human interaction are lower, governments are
faced with significant public management challenges. Autocracies tend to fare worse than
democracies in terms of optimally managing the size of cities, and Davis and Henderson
(2003) actually document that autocracies promote excessive concentration. Glaeser (2014)
argues that in poor countries, autocratic governments are faced with severe challenges of
implementing policies that mitigate negative externalities from urbanisation. In addition,
urbanisation usually leads to migration (Todaro, 1997; Potts, 2009), which also helps
spread HIV. We find that in autocracies, income from international commodity price wind-
falls leads to a significant increase in the urbanisation rate. After controlling for urbanisa-
tion, the effect of income from international commodity price windfalls on HIV infections
decreases by about one-third. This suggests that urbanisation is an important channel
through which income affects HIV incidence.
The increase in the demand for sex that arises from higher incomes does not have to
lead to higher HIV incidence, if precautions are taken. Governments can reduce the spread
of HIV in cities by providing public health services.3 Indeed, our panel regressions show
that HIV infections are significantly negatively correlated with public health expenditures
as share of GDP. We do not, however, find any evidence that in autocracies income from
international commodity price windfalls is used to increase public health expenditure
shares. On the contrary, the panel estimates show that income from international

2 In general, overcrowding in urban areas can facilitate the transmission of diseases and infections
(Fay et al., 2005; Cutler et al., 2006). However, urbanisation may help to reduce HIV transmission if
there is better access to medical facilities in urbanised areas. We will show later in the paper that
urbanisation and HIV infections are positively correlated in autocratic SSA countries.
3 Whether governments choose to implement such policies, i.e., policies that are beneficial to a
broad spectrum of society, depends on the incentives that governments face. Political institutions
(among other factors) shape these incentives (North, 1981).
610 Ting Ji and Faqin Lin

commodity price windfalls has a significant negative effect on public health expenditures in
autocratic SSA countries. The negative effect of income on public health expenditures is
consistent with the view that autocracies tend to provide worse public health services than
democracies (Kaufman and Segura-Ubiergo, 2001; Tavares and Wacziarg, 2001; Brown
and Hunter, 2004; Avelino et al., 2005; Stasavage, 2005; McGuire, 2006; Acemoglu and
Robinson, 2012). The fact that international commodity price windfalls actually lead to

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less public health expenditure is also consistent with the ‘voracity effect’ (Tornell and Lane,
1999), which states that a positive shock could perversely create a more-than-proportional
increase in fiscal redistribution and thus hurts economic growth.
Conditional on urbanisation and public health expenditures, the instrumental variables
estimates show that the effect of income on HIV infections is statistically insignificant.
Quantitatively, this effect (that, by construction, must go through channels other than
urbanisation and public health expenditures) is less than one-tenth the size of the uncondi-
tional effect. For comparison, when controlling for urbanisation only, the conditional effect
of income on HIV infections is about two-thirds the size of the unconditional effect. This
suggests that urbanisation and the disappearance of public health expenditures are import-
ant channels through which an exogenous increase in income raises HIV infections in auto-
cratic SSA African countries. The result is consistent with the view in the literature (e.g.,
Oster, 2005), that the high incidence of HIV in the SSA region is due to high transmission
rates, but the spread of HIV may be prevented by providing readily available, off-patent
drugs and such drugs can be more effectively distributed (by public health services) in cities
than in the countryside.
Our paper contributes to literature that investigates how income affects health. Similar
to Pritchett and Summers’ (1996) ‘wealthier is happier’ view, Levine and Rothman (2006)
document that trade can benefit the health of children through the income channel. On
the other hand, in line with Case and Deaton (2005), Biggs et al. (2010) argue that higher
GDP per capita has no significant effect on health measures, and Rajan et al. (2013) cau-
tion that rising income levels have not been matched by improvements in public health in
India. With regard to HIV in particular, Ahlburg and Jensen (1998) point out that the
increased income provided by exports could drive more risky sex, which may drive up
HIV infection rates, and Oster (2012) documents that increased international goods trade
in SSA Africa, thanks to risky sex practices of truck drivers, is associated with increases
in HIV. Our paper contributes to that literature by (i) using plausibly exogenous variation
in income that is driven by variations in the international commodity prices; (ii) examin-
ing heterogeneity between democracies and autocracies; and (iii) investigating channels
through which international commodity price windfalls affect the relationship between
income and HIV.
The remainder of the paper is structured as follows. The data are presented in Section 2.
Section 3 explains the estimation methodology. Section 4 presents the estimation results of
the impact that income has on HIV infections. Section 5 presents estimation results on the
channels through which income may affect the rate of HIV infections. Section 6 concludes.

2. Data
Our dataset consists of a panel of 48 SSA countries during the period 1985–2007. The time
span and coverage of countries are determined by the availability of data. Our panel
Income from International Commodity Price Windfalls 611

dataset is constructed from the following main sources: Arezki and Brueckner (2012a, b),
Penn World Tables, the World Development Indicators, and Oster (2012). The key vari-
ables in our study are described below.

2.1 Commodity price windfalls

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Given that SSA countries are predominantly primary commodity exporters, the global
demand for commodities could have strong influence on their national incomes. If the
export of a certain commodity is important to a country, the global demand of that com-
modity (reflected by its international price) would have a greater impact on the income of
that SSA country. This allows us to investigate the country-specific effect of international
commodity prices on income, where the country specificity of this effect is based on differ-
ences in the importance of various exported commodities across different SSA countries.
Data on international commodity net-export price index are from Arezki and Brueckner
(2012a, b). The index is constructed as

ComPI i , t = ∏ ComPriceCθi,,tC (1)

c

where log (ComPriceC, t ) is the international price of commodity c in year t , and θi, C is the
average (time invariant) value of net-exports of commodity c in the GDP of country i . We
obtain data on annual international commodity prices for the 1985–2007 period as well as
data on the value of commodity exports from UNCTAD Commodity Statistics.4 The com-
modities included in our index are aluminium, bananas, beef, cocoa, coffee, copper, cotton,
gold, iron, maize, lead, oil, pepper, rice, rubber, sugar, tea, tobacco, wheat, wood and zinc.
In the case where there were multiple prices listed for the same commodity, we use the sim-
ple average of all the relevant prices.

2.2 Democracy
Democracy is measured by the revised combined Polity score (Polity2) of the Polity IV data-
base (Marshall and Jaggers, 2009). The Polity2 score ranges from –10 to + 10. A score of
10 reflects the most democratic institution; a score of –10 reflects the most autocratic insti-
tution, and a score of zero indicates a political institution that is neither democratic nor
autocratic.5 In the literature, the Polity2 score has been used to distinguish democracies
from autocracies. One example is Arezki and Brueckner (2012b), who examine whether the
effect of international commodity price windfalls on external debt is contingent on whether
countries are democratic or autocratic. They code democratic (autocratic) institutions as
strictly positive (negative) values of the Polity2 score and run separate regressions of exter-
nal debt on international commodity price windfalls for democracies and autocracies (see,
also, Brueckner et al., 2012). In this paper, we identify democracies and autocracies in the
same way as Arezki and Brueckner (2012b). As a robustness check, we will employ the
democracy indicator of Przeworski et al. (2000).

4 See http://www.unctad.org/Templates/Page.asp?intItemID=1584/&lang=1.
5 Please see Appendix Table B for the summary statistics of the polity2 score for each SSA country.
612 Ting Ji and Faqin Lin

2.3 HIV infections and income

The HIV infection rate for period t is the rate of new infections in that period divided by
the total population (times 100, so that the value is in percent). The data are from Oster
(2012). Oster uses the following formula for computing the HIV infection (incidence) rate:
πit = hit − hi, t − 1 + dit , where hit is HIV prevalence (in 100 population) and dit denotes the
number of deaths (in 100 population) in the current year. Oster (2012) uses UNAIDS data

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on estimates of HIV prevalence and tracks back to the start of the epidemic (a combination
of earlier trend data from UNAIDS and linear interpolation technique). She uses the follow-
t−1
ing equation πit = hit − hi, t − 1 + ∑j = 1 ct − j πj to calculate incidence, and denote the chance of
dying from HIV after τ years of infection as c τ which is estimated based on other sources of
data.6
As a robustness check, we will draw on mortality-based HIV infection rates computed
in Oster (2012). Oster uses the following formula dit = c1 πit − 1 + c2 πit − 2 + ⋯ + c20 πit − 20
for computing the infection rate πit , where dit is the number of deaths from HIV in a given
year, and c τ is the chance of dying from HIV after τ years of infection. She also needs to see
data back to the start of the epidemic and other data sources for the calculation (e.g., death
rates and time to death) as the computation for UNAIDS HIV infection rates. However,
One shortcoming of the mortality-based data for our purposes of analysis is that it only
provides a limited number of observations (about one-fifth of the UNAIDS data). We there-
fore use Oster’s UNAIDS data as our main measure of HIV infections.
Our main source of data on national income, measured by real GDP per capita data, is
the Penn World Tables, version 6.3 (Heston et al., 2009). As a robustness check, we use
data on real GDP per capita from WDI (2014).7

2.4 Other variables

Data on trade openness (exports plus imports divided by GDP) are from NBER–United
Nations Trade Data. Data on the urbanisation rate (urban population as share of total
population) and public health expenditures (share of GDP) are from WDI (2014).
Summary statistics of the main variables used in the econometric analysis are presented in
Table 1.

3. Methodology
Our main estimating equation relates the HIV infection rate (HIVi, t ) to the log of real
income per capita log (GDPpercapitai, t ) for country i at year t as

HIVi , t = β log (GDP per capita i , t ) + ∅’Xi , t + μi + μ t + vi , t , (2)

where Xi, t is the set of control variables including trade openness, motivated by Oster
(2012), and the lagged HIV prevalence rate. Our objective is to estimate the causal effect of

6 Detailed data on time to death are difficult to generate, particularly in developing countries, since it
requires knowing (roughly) the time of infection. For this reason, she uses the available data from
developed countries and it is shown that the trend is actually similar with Africa. See Oster (2012, p.
1035) for details.
7 Also see Table C in the Appendix for the summary of the definitions and sources for each variable.
Income from International Commodity Price Windfalls 613

Table 1: Summary Statistics

Variable Mean Std. dev. Min Max

HIV incidence rate 0.745 0.950 0.000 5.859

Lagged HIV prevalence 4.721 6.342 0.000 28.900
HIV incidence rate, mortality based 0.589 0.558 0.000 2.486

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Log (GDP p.c.), PWT 7.241 0.808 4.777 10.062
Log (GDP p.c.), WDI 6.357 1.042 3.913 9.519
Polity2 −1.178 5.770 −10.000 10.000
Przeworski et al. (2000) democracy 0.303 0.460 0.000 1.000
Trade openness (share of GDP) 0.609 0.585 0.059 9.866
Urbanisation rate 0.319 0.143 0.051 0.844
Public health expenditures (share of GDP) 0.080 0.099 0.035 0.205

income on HIV incidence, which is summarised by β . We control for country fixed effects,
μi , and year fixed effects, μt .
Fixed effects estimation is a powerful way of soaking up the determinants that we do
not observe or cannot easily control for.8 However, it does not solve the issue of reverse
causality. To address this, we use commodity price windfalls as an instrument to identify
plausibly exogenous variation in SSA countries’ national income.
The first stage of our instrumental variables analysis relates the log of GDP per capita to
the log of the international commodity net-export price index:

log (GDP per capita i , t ) = γ log (ComPI i , t) + δ’Xi , t + a i + a t + ui , t (3)

Equation (2) is estimated using two-stage least squares. We also estimate the effect of
international commodity price windfalls on HIV infections by looking at the reduced form
equation:

HIVi , t = ρ log (ComPI i , t) + φ’Xi , t + bi + b t + ei , t (4)

4. Empirical results
4.1 Estimation results
Table 2 reports OLS estimates of the relationship between income and the HIV infection
rate. While the OLS regression is not equipped to deal with the issue of reverse causality,
and thus its estimates do not identify a causal effect, it is nonetheless useful for helping us
understand the consequences of omitting fixed country characteristics and SSA Africa wide
shocks. Column (1) reports estimates from a simple bivariate regression. Without control-
ling for time and country fixed effects, the OLS regression suggests that income and HIV
are positively correlated. This relationship still holds after including lagged HIV and trade
openness, see columns (2) and (3).

8 For example, high prevalence of tropical disease could reduce income and have adverse effects on
health (McArthur and Sachs, 2001). Gallup et al. (1999) show that in the tropics, income is generally
lower and human health is adversely affected by tropical climate.
614 Ting Ji and Faqin Lin

Table 2: OLS Estimates of the Relationship Between Income and HIV

(1) (2) (3) (4) (5)

Dependent variable: HIV incidence rate

Log (GDP p.c.) 0.424*** 0.120** 0.121** 0.011 0.212
(0.142) (0.055) (0.056) (0.074) (0.145)

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Lagged HIV prevalence No Yes Yes Yes Yes
Trade openness No No Yes Yes Yes
Country effect No No No Yes Yes
Year effect No No No No Yes
Observations 828 828 828 828 828
Adj. R2 0.130 0.572 0.573 0.664 0.706

Note: Robust standard errors are reported in parentheses. Significance at the 10%, 5% and 1% level is indi-
cated by *, ** and *** respectively.

By controlling for country fixed effects, column (4) captures the within-country correl-
ation between income and HIV. Controlling for country fixed effects leads to a quantitatively
much smaller OLS coefficient on income that is statistically indistinguishable from zero.
Column (5) adds to the regression time fixed effects. Including in the econometric model time
fixed effects yields a larger OLS coefficient; however, standard errors also increase so that we
cannot reject the null hypothesis that the OLS coefficient on income is equal to zero.
OLS estimation of the impact that income has on HIV could be downward biased due
to reverse causality. Negative reverse causality bias arises if HIV has a negative effect on
labour productivity. Random measurement error in national accounts statistics implies that
OLS estimates are attenuated towards zero.
Table 3 reports the results of IV regressions that use the international commodity net-
export price index as an instrument for income. We report the Kleibergen and Paap (KP)
F-statistic and evaluate it against a critical value, adopted from Stock and Yogo (2005) that
corresponds to the notion that 15% is the maximal rejection rate the researcher is willing
to tolerate if the true rejection rate is 5%.9 A KP statistic exceeding this critical value
implies that the maximal rejection rate is smaller than 15%, hence the actual size of the test
is between the 5% and 15% levels.
Column (1) of Table 3 reports IV estimates based on a sample that includes all SSA
countries. The estimated coefficient on income is 0.41 and has a standard error of 0.45.
Hence, the average effect of income on HIV in SSA countries is positive but not significantly
different from zero. The KP F-statistic is above the Stock and Yogo critical value; and from
the first stage we see that commodity price windfalls have a significant positive average
effect on income.
Columns (2) and (3) of Table 3 re-estimate the model for democracies and autocracies
separately. For the first stage, the effects of commodity price windfalls on income are statis-
tically significant in both democracies and autocracies. And the first stage KP F-statistics
are higher than the Stock and Yogo critical value. In the second stage, we find that the esti-
mated coefficient on income is negative in the sample of democracies. Quantitatively the
coefficient on income is around −0.21; given the standard error, 0.24, we cannot reject the

9 This follows from the suggestion of Stock et al. (2002).

Income from International Commodity Price Windfalls 615

Table 3: IV Estimates of the Relationship Between Income and HIV

(1) (2) (3)

Pooled sample Democracy Autocracy

Second-stage dependent variable: HIV incidence rate

Log (GDP p.c.) 0.413 −0.209 0.746***

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(0.454) (0.239) (0.250)
P-value: coefficient is same as in Col. II <0.01
First-stage dependent variable: Log (GDP p.c.)
Log(ComPI) 3.081*** 3.254*** 4.725***
(0.830) (0.918) (1.325)
First-stage Kleibergen–Paap F-Stat 9.6 12.55 12.71
Stock and Yogo critical value (15%) 8.96 8.96 8.96
Country + year fixed effects Yes Yes Yes
Lagged HIV prevalence Yes Yes Yes
Trade openness Yes Yes Yes
First stage Adj. R2 0.858 0.977 0.835
Second Adj. R2 0.632 0.872 0.573

Note: Robust standard errors are reported in parentheses. Significance at the 10%, 5% and 1% level is indi-
cated by *, ** and *** respectively.

hypothesis that the coefficient is equal to zero. In SSA countries with autocratic regimes,
the estimated coefficient on income is 0.75; its standard error is 0.25. We can reject the
hypothesis that this coefficient is equal to zero at the 1% significance level. Further, we can
reject the hypothesis that the coefficient on income in the autocracy sample is equal to the
coefficient on income in the democracy sample at the 1% significance level.
The coefficient on GDP per capita in column (3) of Table 3 implies that a 1% increase
in income increases the HIV infection rate by around 0.7% in autocracies. Alternatively,
this coefficient can be interpreted as a one standard deviation increase in GDP per capita
leading to an about 0.6 standard deviation increase in the HIV infection rate. To interpret
this result in terms of the actual number of people infected, we carry out some back-of-the-
envelope calculations. For a small autocratic SSA country such as Equatorial Guinea, a 1%
increase in GDP per capita leads to about 4,000 additional new infections of HIV. For lar-
ger autocracies such as Tanzania and Uganda, the approximate number of new infections
of HIV that will result from a 1% increase in income is around 300,000 and 230,000,
respectively.10 If we take a conservative perspective by using the two standard deviation
lower bound of the point estimate of 0.75, the estimated number of deaths in Tanzania and
Uganda from a 1% increase in income is around 96,000 and 74,000, respectively.

4.2 Robustness check to baseline results

To see the effects of commodity price windfalls on HIV in democracies and autocracies, we
present estimates of the reduced-form relationship. Columns (1) and (2) of Table 4 report

10 This is computed using the population size in 2007. For instance, Tanzania’s population in 2007 was
around 40 million. Using the semi-elasticity of 0.75, we compute the approximate number of add-
itional infections as 40 million × 0.0075 = 300,000.
616 Ting Ji and Faqin Lin

Table 4: Reduced Regression and Alternative Income Data

(1) (2) (3) (4)

Democracy Autocracy Democracy Autocracy

Dependent variable: HIV incidence rate

Log (GDP p.c., WDI) −0.927 1.468**

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Commodity windfall −0.680 3.479*** (1.171) (0.635)
(0.833) (0.901)
P-value: coefficient <0.01 <0.01
First-stage dependent variable: Log (GDP p.c.)
Commodity windfall 0.731* 2.435**
(0.405) (1.079)
First-stage Kleibergen–Paap F-Stat 3.26 5.295
Stock and Yogo critical value (15%) 8.96 8.96
Country + Year fixed effects Yes Yes
Lagged HIV prevalence Yes Yes
Trade openness Yes Yes Yes Yes
First stage Adj. R2 0.992 0.932
Adj. R2 0.873 0.631 0.857 0.453

Note: Robust standard errors are reported in parentheses. Statistical significance at the 10%, 5% and 1%
levels are indicated by *, ** and *** respectively.

least squares estimates of the within-country effect that commodity price windfalls have on
HIV in democracies and autocracies, respectively. The estimates show that the effect of
international commodity price windfalls on HIV infections is negative but not significantly
different from zero in democracies; in autocracies the effect is positive and significantly dif-
ferent from zero at the 1% significance level. We can reject the hypothesis that the coeffi-
cient on the international commodity net-export price index in column (1) is equal to the
coefficient in column (2) at the 1% significance level. Quantitatively, the coefficient in col-
umn (2) implies that a one standard deviation increase in the international commodity net-
export price index is associated with an increase in the HIV incidence rate of about 0.5%.
To interpret this result in terms of the actual number of people at risk, take Tanzania for
example: a one standard deviation increase in the international commodity net-export price
index is associated with about 200,000 new infections of HIV.
Another robustness check that we have carried out is to use alternative national income
data. Instead of using the real GDP per capita variable from PWT, we consider using data
on real GDP per capita from WDI. Based on the WDI national income data, column (3) of
Table 4 presents second-stage estimates for the sample of democracies; column (4) presents
estimates for autocracies. We see that the second-stage coefficient on income is negative
and not significantly different from zero in democracies; in autocracies it is positive and we
can reject the hypothesis that the coefficient on income is equal to zero at the 5% signifi-
cance level. Quantitatively, the size of the second-stage coefficients on income are larger (in
absolute value) for regressions that are based on WDI data; however, the respective second
stage coefficients are also associated with larger standard errors. The larger second stage
standard errors are due to a more imprecise first stage fit between commodity price wind-
falls and income when data from the WDI are used.
Income from International Commodity Price Windfalls 617

A further robustness check is to examine whether the results are sensitive to using an
alternative democracy indicator. Columns (1) and (2) of Table 5 report estimates based on
the democracy indicator of Przeworski et al. (2000). We see that the second-stage coeffi-
cient on income is negative and not significantly different from zero in democracies; in
autocracies it is positive and we can reject the hypothesis that the coefficient on income is
equal to zero at the 1% significance level. Quantitatively, the coefficients on income are

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similar to the benchmark estimates that are based on the polity democracy indicator.
Columns (3) and (4) of Table 5 report results using Oster’s mortality-based HIV infec-
tion data. We see that the second-stage coefficient on income is negative and not signifi-
cantly different from zero in democracies; in autocracies it is positive and we can reject the
hypothesis that the coefficient on income is equal to zero at the 10% significance level.

4.3 Agricultural versus mineral and fuel price shocks

Intertemporal theories of consumption stipulate that consumption should respond more
strongly to persistent income than to temporary variation income. If sex is a normal good,
then persistent income shocks should have a larger effect on the demand for sex than transi-
tory income shocks. As is well known, variations in agricultural commodity prices are
more transitory in nature than those in mineral and fuel prices. Given this difference, it
could be that our results regarding the HIV response in autocracies are mostly driven by
those commodities where variations in prices are of persistent nature.
In Table 6, we explore the effects of agricultural commodity price windfalls, and mineral
and fuel commodity price windfalls, separately. Columns (1) and (2) show that both types
of commodity price windfalls have a significant positive effect on income. Columns (3) and

Table 5: Alternative Democracy and HIV Infection Data

(1) (2) (3) (4)

Democracy Autocracy Democracy Autocracy
Przeworski et al. (2000) HIV incidence rate
mortality based

Dependent variable: HIV incidence rate

Log (GDP p.c.) −0.541 0.669*** −47.313 0.719*
(0.428) (0.253) (262.53) (0.517)
P-value: coefficient <0.01 <0.01
First-stage dependent variable: Log (real GDP per capita)
Commodity windfall 3.397*** 3.202*** 1.393* 3.468**
(0.882) (1.108) (0.917) (1.562)
First-stage Kleibergen–Paap F-Stat 19.65 8.76 2.309 4.931
Stock and Yogo critical value (15%) 8.96 8.96 8.96 8.96
Country + Year fixed effects Yes Yes Yes Yes
Lagged HIV prevalence Yes Yes Yes Yes
Trade openness Yes Yes Yes Yes
First stage Adj. R2 0.972 0.825 0.881 0.974
Adj. R2 0.828 0.528 0.808 0.686

Note: Robust standard errors are reported in parentheses. Statistical significance at the 10%, 5% and 1%
levels are indicated by *, ** and *** respectively.
618 Ting Ji and Faqin Lin

Table 6: Agricultural Versus Mineral and Fuel Commodities on Income and HIV

Dependent variable (1) (2) (3) (4)

Autocracy Autocracy Autocracy Autocracy
Log (GDP p.c.) Log (GDP p.c.) HIV incidence HIV incidence
rate rate

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Log(ComPI), Agricultural 17.843*** 5.592
commodities (6.657) (6.926)
Log(ComPI), Mineral and fuel 4.557*** 3.590***
commodities (1.338) (0.936)
Country + Year fixed effects Yes Yes Yes Yes
Lagged HIV prevalence Yes Yes Yes Yes
Trade openness Yes Yes Yes Yes
Adj. R2 0.823 0.836 0.601 0.610

Note: Robust standard errors are reported in parentheses. Statistical significance at the 10%, 5% and 1%
levels are indicated by *, ** and *** respectively.

(4) show that whereas the coefficient on the agricultural commodity price index is positive and
statistically indistinguishable from zero, the coefficient on the mineral and fuel price index is
positive and significantly different from zero at the 1% level. Hence, our previous findings are
driven mostly by variation in international commodity prices that are of persistent nature.

5. Channels
We now turn to the discussion of channels through which higher national income leads to
an increase of the HIV infection rate in autocratic SSA countries. Our main hypotheses are
that urbanisation is an important factor and the increase in urbanisation is supplemented in
autocracies by lower public health expenditure shares in GDP.
The first step in examining whether urbanisation and public health expenditures are chan-
nels through which income systematically affects HIV infections consists in regressing the latter
variable on the former variables. The relevant results are presented in Table 7. Column (1)
shows that the HIV infection rate is significantly positively correlated with urbanisation. This is
in line with the stylised fact that, in autocracies, HIV infections occur at a higher rate in cities
than in rural areas. We also find that public health expenditures are significantly negatively cor-
related with HIV infections, see column (2) of Table 7. This suggests that a decrease in the HIV
infection rate goes hand in hand with an increase in public health expenditures.
Next, we show that urbanisation significantly increases with higher income in autocra-
cies but not in democracies. For the autocracy sample, the coefficient on GDP per capita is
positive and significantly different from zero at the 1% level, see column (1) of Table 8. On
the other hand, the coefficient on GDP per capita is quantitatively small and statistically
insignificant in the sample of democracies. We can also reject at the 1% significance level
the hypothesis that the effects of income on urbanisation are the same in democracies and
autocracies at the 1% significant level. With regard to public health expenditures, we find
that national income has a significant negative effect on this variable in autocracies; in dem-
ocracies the effect is insignificant. These results suggest that in autocracies increases in
national income lead to an increase in urbanisation and lower public health expenditures.
Income from International Commodity Price Windfalls 619

Table 7: Relation between HIV, Urbanisation and Public Health Expenditures in Autocracies.

(1) (2) (3)

Dependent variable is HIV infection rate

Urbanisation rate 7.660*** 7.690***
(2.178) (2.165)

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Public health expenditure −3.607*** −3.336**
(1.378) (1.579)
Country + year fixed effects Yes Yes Yes
Lagged HIV prevalence Yes Yes Yes
Trade openness Yes Yes Yes
Adj. R2 0.632 0.602 0.602

Note: Robust standard errors are reported in parentheses. Statistical significance at the 10%, 5% and 1%
levels are indicated by *, ** and *** respectively.

Table 8: Effect of Income on Urbanisation and Public Health Expenditures

Second-stage dependent Autocratic sample Democratic sample

variable
I II III IV
Urbanisation Public health Urbanisation Public health
rate expenditures rate expenditures

Log (GDP p.c.) 0.075*** −0.151*** −0.002 0.038

(0.027) (0.034) (0.017) (0.037)
First-stage dependent variable: Log (GDP per capita)
Log(ComPI) 4.708*** 4.379*** 3.126*** 3.254***
(1.349) (1.345) (0.974) (0.997)
First-stage Kleibergen– 12.653 11.059 12.068 12.598
Paap F-Stat
Stock and Yogo critical 8.96 8.96 8.96 8.96
value (15%)
Country + Year effects Yes Yes Yes Yes
Lagged HIV prevalence No Yes No Yes
Trade openness Yes Yes Yes Yes
First stage Adj. R2 0.839 0.838 0.976 0.978
Second Adj. R2 0.966 0.772 0.995 0.570

Note: Robust standard errors are reported in parentheses. Statistical significance at the 10%, 5% and 1%
levels are indicated by *, ** and *** respectively.

If urbanisation and public health expenditures are important channels through which
income affects HIV infections in SSA countries, then one would expect to see the coefficient
on income to become smaller (in absolute value) when including these variables in a multi-
variate regression model. Table 9 shows that, indeed, the conditional effect of income on
HIV infections is quantitatively smaller. For example, column (1) of Table 9 shows that
after controlling for urbanisation the coefficient on GDP per capita is 0.49. For comparison
column (3) of Table 3 showed that, without controlling for urbanisation, the coefficient on
GDP per capita is around 0.75. This suggests that up to one-third of the effect that income
620 Ting Ji and Faqin Lin

Table 9: Effect of Income on HIV in Autocracies Conditional on Urbanisation and Public Health
Expenditures

(1) (2)

Dependent variable is HIV infection rate

Log (real GDP per capita) 0.492*** 0.045

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(0.174) (0.125)
Urbanisation rate 3.337*** 2.590**
(1.085) (1.102)
Public health expenditure −3.320**
(1.655)
First-stage dependent variable: Log (real GDP per capita)
Commodity windfall 6.812*** 5.754***
(1.469) (1.227)
First-stage Kleibergen–Paap F-Stat 22.35 22.94
Stock and Yogo critical value (15%) 8.96 8.96
Country + Year fixed effects Yes Yes
Lagged HIV prevalence Yes Yes
Trade openness Yes Yes
First stage Adj. R2 0.859 0.878
Second Adj. R2 0.606 0.448

Note: Robust standard errors are reported in parentheses. Statistical significance at the 10%, 5% and 1%
levels are indicated by *, ** and *** respectively.

has on HIV is due to an increase in the urbanisation rate. Column (2) of Table 9 shows that
when including in the multivariate regression model public health expenditures the coefficient
on GDP per capita is around 0.045; given the standard error of 0.13 we cannot reject the
hypothesis that this coefficient is equal to zero. Hence, when shutting down the effects that
income has on urbanisation and public health expenditures, the (residual) effect of income on
HIV infection is quantitatively small and statistically indistinguishable from zero.

6. Conclusion
Both autocratic and democratic SSA countries experienced in the past decade significant
increases in their national income. For example, during the period 1997 to 2007 the real
GDP per capita of democratic SSA countries increased from about 1,700USD in 1997 to
2,700USD in 2007; in autocratic SSA countries GDP per capita increased from 1,300USD
in 1997 to about 2,000USD in 2007. Both autocratic and democratic SSA countries thus
experienced during 1997–2007 similar increases in their national income, at the rate of
about 5% per annum. However, there was a remarkable difference in the evolutions of the
urbanisation rate and HIV infections between autocracies and democracies: The increase in
the urbanisation rate was about three times larger in autocracies than in democracies; HIV
infections increased at a rate in autocracies that was about twice that in democracies.11

11 Specifically, the urbanisation rate (HIV infection rate) increased in democratic SSA countries from
0.33 (0.62) in 1997 to 0.35 (0.79) in 2007; in autocratic SSA countries the figures are 0.32 (0.92) and
0.38 (1.44), respectively.
Income from International Commodity Price Windfalls 621

The above stylised facts suggest that the relationship between income and HIV infec-
tions may differ between autocratic and democratic SSA African countries; further, differ-
ences in the path of urbanisation stand out. The purpose of this paper was to examine in a
rigorous way, based on panel data and instrumental variables estimation, the effects that
national income has on HIV infections, and the role that urbanisation plays as a channel.
Using variation in an international commodity net-export price index as an instrumental

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variable, we found that exogenous increases in national income lead to an increase in the
HIV infection rate in autocratic SSA countries; in democracies the effect is insignificant.
Differences in the response of urbanisation to exogenous income are one important factor
driving this difference: whereas in autocratic SSA countries urbanisation significantly
increased due to an exogenous income increase, no such effect was detected in democracies.
The instrumental variables estimates showed that (increases in) urbanisation accounted for
about one-third of the positive effect that national income had on HIV infections in auto-
cratic SSA countries.
Theoretically, the effects of urbanisation on HIV infections are ambiguous: in cities the
costs of finding multiple sexual partners are lower but so are the (unit) costs of preventing
the spread of the disease; and migrants in cities, being away from spouses and family moni-
tor, are also more likely to be involved in transactional sex. However, in principle govern-
ments can take action to prevent the spread of the disease and in cities such actions will be
more cost effective. Whether governments choose to implement such policies is an open
question. The empirical evidence provided in this paper showed that in autocratic SSA
countries exogenous increases in national income lead to a significant decline in public
health expenditures. This suggests that autocratic SSA regimes neglected the public health
care system and thus failed to prevent the spread of HIV.

Supplementary material
Supplementary material is available at Journal of African Economies online.

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