Conflict and Effects on Economic Development - Essay Example

Conflict and Effects on Economic Development Conflict and Effects on Economic Development TABLE OF CONTENTS ………………………………………………………………………………..2 Introduction ………………………………………………………………….….……..3 Significance of the literature review………………………………………………........3 Structure of the review………………………………………………………………….4 Conflicts lead to low human development ……………………………………………..4 Economic impacts of conflicts in the Middle East ……………………………………..4 Effect of Religious and Ethnic conflict on Growth…………………………………..…5 Effects of Conflict on the structure of the economy………………………………….…5 How conflict affects growth ……………………………………………………………6 Causes of conflicts………………………………………………………………………7 How conflicts can be prevented …………………………………………………….......7 Conclusion…………………………………………………………………………..…..8 References……………………………………………………………………………….10 Conflict and Effects on Economic Development Abstract The literature review is going to discuss on the impact of conflicts on economic growth of the country. In this scenario, I shall discuss in detail the different types of conflicts that, usually, affect countries and the impact of conflicts on GDP of a country. Conflicts are the major contributors on the poor performance of economies affected by conflicts (Kim and Conceicao, 2010). In post conflict situations, some countries, usually, take a long time to recover their previous economic status thus derailing growth. Additionally, I will also factor in the major causes of conflicts. Consequently, the structure of the economy can also be affected by conflicts, and I shall feature the case of the two Latin American countries; Costa Rica and Nicaragua. Furthermore, I shall feature on the causes of conflicts and alternative ways of conflict resolution. This is because, in a conflict situation there has to be a consensus to resolve conflicts for the economy to return normalcy. Instability is one of the factors that have serious adverse effects on the economy. Conflicts have serious consequences on the economy because conflicts, usually, destroy the wheels of the economy one of them being the destruction of the human capital. In post conflict situations, the economy can take a relatively short or long time to recover depending on the measures undertaken to curb the situations in post conflict situations. In the Basque Country case study shows that the GDP dropped by 10% between since the start of the insurgent 1n 1960 (Abadie and Gardeazabal, 2003). The economic growth can be explained from two theories i.e. neoclassical growth theory that predicts that after the conflict the economy recovers quickly. On the other hand, another alternative model explains that the economic recovery may take a long time because the human capital takes a long time to recover (Serneels and Vapoorten, 2010). In some post conflict situations, some countries may fail to progress due to the poor economic performance. Additionally, some of the conflicts inflicted countries experience economy recovery few years after reconciliation (Serneels and Vapoorten, 2010). If physical capital is destroyed during conflicts then an economy is likely to converge quickly but if the human capital is destroyed during the conflict then it will take a relatively long time for the economy to recover to its normal state. According to Serneels and Vapoorten (2010), a civil conflict is less detrimental than an international conflict in terms of physical infrastructure because it uses a lower technology. On the other hand, it can have detrimental effects on the existing institutions and the social order. Different research that have been conducted in different post war situations shows that different economies have taken different number of years to recover. For example, Japanese cities have taken about 53 years after the US bombings to come back into the track in terms of human capital and physical infrastructure (Serneels and Vapoorten, 2010). Significance of the literature Review Conflicts directly or indirectly affect the economic growth of countries in various ways. Conflict destroys various forms of capital. In this scenario, it causes the vicious cycle of poverty on the affected country. Recent research study has shown that conflicts normally start when there is a slow growth of economic development. Consequently, slow level income per capital and economic slowdowns has been shown to be the major causes of armed conflicts (Kim and Conceicao, 2010). Additionally, by internalizing the effects of conflicts on the GDP of a country then predictions can be made to determine what should be done to avoid them. Furthermore, the literature will make us understand how various conflicts affected the GDP of some of the countries. Conflicts have a significant threat to economic development and since 1990; conflicts have claimed about three million lives in developing countries (Kim and Conceicao, 2010). A perfect example is the Ethiopian civil war that claimed about 1.2 million people in which only 2% of the population was involved in direct combat. Additionally, it can be detrimental when conflict recurs in a country. Research has shown that the country affected by the conflict has high chances of returning back into a conflict within a period of five years (Kim and Conceicao, 2010). The existence of poverty conflict traps has also been associated with poor health and education outcomes. In this scenario, the country involved a country it destroys the accumulated physical and human capital, in other cases when human capital is replaced can lead to institutional collapse. Consequently, a country with low level of human development will have difficulty in improving productivity any potential economic growth. Hence, from the above phenomenon thus a country will have a slow economic development trapping country into another conflict again. Poor economic performance can trigger the occurrence of a conflict. In this scenario, poverty is associated with many crimes like armed robbery and other social breakdowns. In this scenario, if economic development is improved by 1% then the like hood of the occurrence of a conflict drops by 0.6% (Kim and Conceicao, 2010). Structure of the review First, I will discuss on the economies that are nursing the post conflict situations and how they are reviving their economies back to the way it was before conflict erupted. Furthermore, the paper will feature the effects towards the economy. Here I will sample the Middle Eastern Countries and those of Latin America. The literature will also discuss briefly the causes of conflicts and on how the conflicts will be prevented before making conclusions. Conflict leads to low human development Literature has shown that conflict is associated with poor economic performance. Research has shown that countries that experienced conflicts after 1975 have the sharpest drop in economic development (Kim and Conceicao, 2010). In this scenario, countries affected with a conflict have divided societies because of inequality and ethnic fragmentation. This measure is in tandem with the rule of law, the government institution, social nets and democratic rights. Countries that do not observe these fragments are likely to go into conflict. Featuring on the impact of a civil war is Rwanda from 1990-2000 conflict that had devastating consequence on the economy and people. The genocide caused mass loss of human capital leading to lower economic gain of formerly rich provinces in the East and North of Rwanda compared to the previously poor provinces in the Western and Southern parts of Rwanda (Kim and Conceicao, 2010). Any adverse economic shock causes a country delve into a vicious cycle of poverty. While a number of factors can trigger conflict, any low level of human development has a high like hood of triggering a conflict (Kim and Conceicao, 2010). Economic Impact of Conflicts in the Middle East Several studies have examined the effects of conflicts on an economy. The results indicate that conflicts have a direct impact on a G.D.P of a country. In this scenario, civil war results in a decline of GDP. This is because; wars lead to a reduction in the countrys output and loss of capital stocks. The various wheels of the economy are affected ranging from manufacturing transportation and even consumption. The capital and the transaction intensive sectors are negatively affected because of the conflict (Sab, 2014). In the Middle East countries such as Kuwait, Lebanon, and Iraq conflicts caused a decrease in the aggregate supply by destruction of the physical capital, dislocation of labour and disorganization (Sab, 2014). In this scenario, the economic efficiency in those countries was compromised because of interference in technological absorption and the dwindling of the human and physical capital. Consequently, this contraction led to weak financial systems, acceleration of inflation, and huge fiscal deficits (Sab, 2014). In the post conflict recovery, countries rich in oil like Iraq and Kuwait recovered their aggregate supply faster than Lebanon, which is not an oil producing country. This is entirely dependent on the economy of the country. In Iraq and Kuwait oil production has a large percentage of total supply than Lebanon thus a quick economic recovery than Lebanon, which has taken a long time to recover their economy (Sab, 2014). Effect of Religious and Ethnic conflict on Growth. Religious and ethnic divisions have also been shown to slow the economic growth of the country in many ways. The ethnic division is one of the recurrent noneconomic factor that is affecting the growth in some countries. Ethnic differences play a crucial role in various countries politics and, as a result, lead to tensions in various levels (Montalvo and Querol, n.d). Since this topic has not been featured in detail by most authors, high population growth, low level of education, low investment and high levels of political instability are the primary causes that deter a growth. On the other hand, ethnic diversity leads to little investment and hence poor economic performance and political instability (Montalvo and Querol, n.d). Consequently, religious diversity causes segmental cleavages that lead to political instability. Social factors like, religion, race and language have little been discussed but they too have an impact on economic growth. These conflicts are evident in countries like Israel and Lebanon. In these countries, we have conflicts between religious communities. Another example is Nigeria where is a conflict between Islamic organizations. Additionally in Malaysia, we have conflicts between Christians and Muslims and finally in India, there is a conflict between Hindus and Muslims (Montalvo and Querol, n.d). Consequently, this can have an adverse effect on the economy. Effects of Conflict on the structure of the economy Conflict can also affect the structure of the economy. Countries like Nicaragua and Costa Rica had the same history, language, and geographical location. However, when you compare the two countries fifty years later, Costa Rica is more developed than Nicaragua. The GDP of Costa Rica is five times that of Nicaragua (Chauvin, n.d). On matters related to human development, Costa Rica is ranked 48th while Nicaragua is ranked 110th. Costa Rica has invested in electronics, financial outsourcing, and ecotourism and software development while Nicaragua depends on an agrarian economy of production and export of cash crops (Chauvin, n.d). In the above scenario, Costa Rica has achieved economic development than Nicaragua because Costa Rica has enjoyed political stability than Nicaragua. It also faced Sandinista Rebellion in 1970s and the Contra war in the 1990s (Chauvin, n.d). In the above phenomenon, we can develop a hypothesis that conflicts are the underlying reason for economic and structural problems that are facing some of the poor countries. How Conflict Affect Growth There have been many conflicts in the world. The conflicts cause mass depletion of resources hence hindering some countries to sustain adequate economic growth. Civil war decreases the growth of physical and human capital and reductions in FDI and trade (Polacheck, 2010). Consequently, civil wars are less often in democracies. Additionally, terrorism and conflict can have adverse effects on developing countries than in developed countries. This is because developing countries will have to incur an extra cost in terms of security. However, in developed countries it will have little effect because it will absorb the problem without displaying any economic consequences (Gaibulloev et al., 2009).A country that that is frequently attacked by terrorist may scare away investors because of the high risks involved. Terrorist commonly targets key economic targets of an economy so that their demands can be taken into consideration. This scenario creates fear and may lead to the collapse of the tourism sector as it was observed in Spain during the 1980s when the Euskadi, Ta Aska-tasuna terrorist group targeted hotels in that country (Gaibulloev et al, 2009). Furthermore, when the Basque Country was faced with an insurgency from ETA, it apparently scared away investors who chose different destinations. In this scenario, The Basque terrorist activity scared away a number of investors who could have invested there (Abadie, Gardeazabal, 2003). Hence, as the result of this phenomenon the G.D.P of Spanish economy dropped drastically since the 1960s. Furthermore, social instability can also affect growth of the economy. This can happen in the short and long run. There is a direct reduction of economic performance as most of the attention focus on conflict. In the end, social conflicts can reduce the overall investments and lead to the postponement of economic initiatives meant to boost the economy. For example, Bolivia is a country whereby a large population does not speak the countrys official language leading to lack of trust. Bolivia lacks a legal framework to prevent hostilities. This is as the result of differences in ethnicity and income divisions. Additionally, Bolivias tensions with its neighbors have contributed the country poor economic performance (Gaibulloev et al., 2009). Bolivia has no access to the sea and their imports solely depend on the infrastructure of their neighbors. Research has shown that landlocked countries incur extra costs on transport thus lowering their GDP. Causes of Conflicts There are many theories that explain the origin of conflicts. Conflicts, usually, arise from competition for resources, human instincts, struggle for power and structure of the societal institutions that create classes of people (Mayer, n.d). Additionally, less economic growth can also trigger a vicious cycle of poverty thus raising the probability of occurrence of another conflict. Majority of the civil wars in Africa are caused by dependence on natural resources and failed political institutions (Elbadawi and Sambanis, 2000). The best policies that can be undertaken to prevent the future occurrence of civil wars include instituting democratic reforms. Additionally, the intergroup cooperation can also help reduce the occurrence of civil wars (Elbadawi and Sambanis, 2000). Civil wars can lead to deterrent to economic growth and mass loss physical and human capital. How conflicts can be prevented With the escalation of conflicts like the Rwandan genocide, failure of the Statelike Somalia and the Bosnia Herzegovina war brought the world together on the importance of solving the conflict at an early stage before it escalates. Conflicts can be solved using diplomacy (Wallensteen and Moller, n.d). In this scenario, this will prevent war escallation that might lead to further destruction. Additionally, the practice of democracy and the holding of elections can help in maintaining peace in developing countries (Flores et al., 2011). In post conflict situations countries like Rwanda and South Africa, which are healing the post conflict situations, reconciliation and internal assistance has played a critical role in economic stability (Kumar, 1999). Consequently, in extreme situations of conflicts, the deployment of the international peacekeeping missions is crucial in the restoration of peace and stability as it happened Liberia (Patterson, 2014). Collier et al., (2014) concludes that economic development is one of the pillars of stability in the developing countries. Conclusion Conflicts have adverse effects on the growth of the economy. Countries that have hit by a conflict it, usually, takes a long time before stability is installed. Additionally, conflicts lower the GDP of a country, and this can lead to high poverty levels that can create another conflict. Moreover, conflicts can affect the structure of the economy like the case of Costa Rica and Nicaragua. Additionally, conflicts can be resolved using diplomacy. Conflicts lead to the destruction of human and physical capital leading to the stagnation of the economy. Conflicts are, usually, triggered by competition for resources and amongst other factors like ethnicity and religious factors. Finally, this study is important because it highlights how conflicts affect an economy, its causes, and on how conflicts can be prevented. In my view, leaders should always embrace democracy, observe human rights, and promote equity so as to prevent the outbreak of conflicts. References Abadie, A., & Gardeazabal J. (2003). The Economic Costs of Conflict: A Case Study of the Basque Country. American Economic Review, 93(1), 113-132. Chauvin, N.M.D. (n.d). The Effects of Conflict on the Structure of the Economy. Retrieved 10 October 2014 from https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=FEMES09&paper_id=323. Collier, P., Hoeffler, A., Soderborn, M. (2014). Post conflict Risks. Center for Study of African Economies, Department of Economics, Oxford University. De Borger, Bruno, Verard and Vincenzo. (2009). Estimating the Direct Costs of Social Conflicts. Road Blockings in Bolivia. Brussels: Wiley Blackwell. Elbadawi, E., Sambanis, N. (2000). Why are there so many civil wars in Africa? Understanding and preventing violent conflict. Retrieved on 9th October 2014 from http://jae.oxfordjournals.org/content/9/3/244.abstract. Flores, Thomas E & Irfan. (2011). "Credible Commitment in Post-Conflict Recover." In Handbook on the Political Economy of War, edited by Christopher Coyne and Rachel Mathers. Retrieved 10th Oct 2014 from http://politicalscience.osu.edu/faculty/nooruddi/research/floresnooruddin.handbook2011.pdf. Gaibulloev, Khusrav, Sandler and Todd. (2009). The Impact of Terrorism and Conflicts on Growth in Asia. New York. Wiley Blackwell. Kim, N and Conceicao, P. (2010). The Economic Crisis, Violent Conflict, and Human Development. International Journal of Peace Studies, 15 (1). 1-15. Kumar, K. (1999). Promoting Social Reconciliation in Post conflict Societies, Assessment Report No 24. Retrieved on 10th October 2014 from http://www.oecd.org/derec/unitedstates/35112635.pdf. Montalvo, J.G, and Querol, M.R. (n.d). The Effect of Ethnic and Religious Conflict on Growth. Retrieved on 9th October 2014 from http://www.econ.upf.edu/~montalvo/wp/rel_ethn.pdf. Mayer, B.S. (n.d). The Dynamics of Conflict Resolution. Retrieved on 9th October 2014 from http://www.hawaii.edu/hivandaids/The%20Dynamics%20of%20Conflict%20Resolution.pdf. Patterson, W. (2014). The Role of Internal Policing in Post Conflict Development: The Case of Liberia. CEU Political Science Journal, 4, 103-126. Polacheck, S.W. (2010). Does Conflict Disrupt Growth? Evidence of the Relationship between Political Instability and National Economic Performance. Retrieved on 9th Octotober 2014 from http://ftp.iza.org/dp4762.pdf. Serneels P, Vapoorten M. (2010). Impact of Armed Conflict on Economic Performanc Evidence From Rwanda. Retrieved on 9th Octotober 2014 from http://mitsloan.mit.edu/neudc/papers/paper_235.pdf Sab, R. (2014). Economic Impact of Selected Conflicts in the Middle East: What Can We Learn from the Past? Retrieved on 9th Octotober 2014 from http://www.imf.org/external/pubs/ft/wp/2014/wp14100.pdf. Wallensteen and Moller, F. (n.d).Conflict Prevention:Methodology for knowing the unknown. Retrieved on 10th October 2014 from, http://www.pcr.uu.se/digitalAssets/61/61533_1prevention___knowing_the_unknown.pdf. Read More