converge to their own steady state and that countries face decreasing returns to human and physical capital. An exogenous destruction of production factors through war will therefore result in a more rapid accumulation of physical or human capital after armed conflict. In its plainest form, this model predicts that countries will grow much quicker after a negative exogenous shock. The long-term economic costs of conflict are therefore less severe.

Empirically there is some support for this hypothesis from external wars. In an early contribution, Organski and Kugler (1977) show that output of winners and, more surprisingly, also losers of the World Wars caught up with non-affected countries after 15 to 20 years. This is supported by additional evidence from the micro level. Davis and Weinstein (2002) show that Japanese cities that were bombed had completely recovered their relative size 20 years after the US bombing in World War II. In a similar vein, Brakman et al. (2004) find that the bombing of Germany had a significant but temporary impact on post-war city growth in West Germany but a sustained impact in East Germany. Miguel and Roland (2011) study a whole battery of indicators from poverty rates, population densities to schooling in Vietnam 25 years after the US bombing campaign and find that the local economy had recovered.

Of course, the time dimension involved in these findings is in itself not a reason for general optimism in a post-conflict situation. The macro evidence on quicker gains is more mixed - mostly because there is no agreed methodology for how to study recoveries. Cerra and Saxena (2008) use a method to study crisis episodes more generally to study civil wars. In this method the start of an episode is coded as 1 and the impact over time is studied using forwards and lags. They find that, while output falls steeply immediately after conflict (6 percent on average), the economy recovers relatively soon afterwards. Mueller (2012) shows that this, fairly optimistic, view is due to a coding error. Economies contract by more than 18 percent in a civil war and this is not recovered within a decade. Mueller et al. (2017) confirm that there does not seem to be a distinct recovery growth period in the economic growth data. Countries appear to return to their average growth level in the absence of conflict. While this is good news in the sense that there is positive growth on average, it is also bad news in the sense that there seems to be, on average, no adjustment back to steady state once conflict is over. This is in contradiction with findings on the quick rebuilding of capital stock found in the literature. A possible theoretical explanation for this disparity between the micro and macro evidence comes from Barro and Sala-i-Martin (2003) who predict that the speed of recovery depends on the type of capital that is destroyed, with a slower recovery if human capital is destroyed, because it has a higher adjustment cost.

This is particularly relevant as there is evidence in the literature that exposure to conflict during early childhood or adolescence has a huge and persistent direct effect on health, education and productivity of children. Leon (2012) shows that the average person exposed to political violence in Peru before school-age accumulated 0.31 fewer years of schooling upon reaching adulthood. This suggests that children who were affected by violence during early childhood suffer irreversible effects. Duflo (2001) finds that the effect of a huge school construction program in Indonesia on school attainment in the long-run is of a slightly smaller magnitude. Each school constructed per 1,000 children led to an increase of 0.12 to 0.19 year of education. This means that if one wanted to mitigate the long-run effect of conflict in Peru on schooling by opening more schools, one would need to build more than 8,000 new schools. This is a big adjustment cost which supports the claims in Barro and Sala-i-Martin (2003). Akresh et al. (2012) also identify the long-term impact of exposure to conflict during the Nigerian civil war in the late 1960s on health. They find that individuals who were exposed to this conflict in their childhood or adolescence have a reduced stature. Adult stature is a latent stock measure of health and variation in height induced by childhood or adolescence environment has been 3