Economic shocks lead to lower societal development and increased conflict, which locks in a self-reinforcing conflict cycle.

An adverse economic shock can be dangerous because its impact may be longlived if countries are forced into a vicious cycle of low human development and conflict. While conflict might be caused by many factors, low levels of human development increase the risks of conflict outbreaks and recurrence. Conflict, in turn, destroys the accumulated physical, social and human capital. The linkage between conflict and human development may form a self reinforcing cycle. The possibility of countries entering low human development – conflict traps implies that policies that sustain human development will eventually contribute to reduction of the risk of conflict. It suggests that there exists an additional benefit of policies that enhances human development, to the extent that enhanced human development reduces risks of conflict. The consideration of these benefits may lead to a re-assessment of policies that appear very costly when these benefits are ignored.

It is important to pursue policies that mitigate the risks of conflict outbreak, especially when countries are facing, as in the context of the current crisis, sharp economic slowdowns. International efforts on peacekeeping can play a significant role in peace building. Doyle and Sambanis (2006) review the evidence on United Nations peacekeeping missions and find that they are associated with a higher likelihood of peace two years after the end of the war. Their multivariate regressions show that international capacity and hostility variables are very robust and local capacity variables less so due to their competitive interaction with other covariates. Fortna (2008) also demonstrates that peacekeeping is an extremely effective policy tool, dramatically reducing the risk that war will resume. Relatively small and militarily weak consent-based peacekeeping operations are often just as effective as larger, more robust enforcement missions. However, peacekeeping does not guarantee the expected result. The effectiveness of peacekeeping is still being studies, and the policy options should be carefully considered. Foreign aid and development support can also have an impact in reducing the risk of civil war. Collier and Hoeffler (2002) suggest that aid and policy do not have direct effects upon conflict risk, but both directly affect the growth rate and the extent of dependence upon primary commodity exports, and these, in turn, affect the risk of conflict. Simulating the effect of a package of policy reform and increased aid on the average aid recipient country, they find that after five years the risk of conflict is reduced by nearly 30%. De Ree and Nillesen (2006) propose GDP levels of donor countries as new and powerful instruments for foreign aid flows in the conflict regression for subSaharan Africa. They find a 10 percent increase in foreign aid decreases the risk of civil conflict by about six percent. The current economic crisis, in addition to the potential devastating economic and human development impacts that it may originate, increases the risk of pushing some developing countries into a low human development – conflict trap. And consequently, policy measures to sustain human development would also have an additional indirect impact in lowering the risk of conflict.