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