37% in 1970 [Artadi and Sala-i-Martin (2003)]. Carried by this global trend and strong economic performance, the welfare improvement was probably even more impressive in GCC countries, which now enjoy some of the highest living standards in the world, with its UNDP-based Human Development Index comparable to OECD rates.

Not surprisingly, the significant improvement of living standards in the rest of the world coupled with dramatic deterioration in SSA has resulted in a disproportionate increase in the contribution of Sub-Saharan Africa to global poverty. The Sub-Saharan African region now accounts for over 40% of the global poor, notwithstanding its relatively lower population share [Sala-i-Martin (2003)].<sup>26</sup> As a consequence of this dramatic deterioration of living standards, it is projected that no country in that region will meet the first Millennium Development Goal of halving poverty by 2015 [Berg and Qureshi (2005)].

# **III. Analytical Framework**

The divergent development outcome between the GCC and the equally natural resource-rich SSA region may suggest that the abundance of natural resources has been growth-enhancing in the former and growth-inhibiting in the latter. According to economic theory, this latter unexpected development outcome, also known as the paradox of plenty, is highly plausible. Three channels of causation from natural resource abundance to lower growth are often articulated in the literature: rent seeking through the voracity effect, terms of trade shocks through the commodity prices volatility channel, and the more widely discussed Dutch Disease channel [Isham et al. (2005)].

Empirical evidence supports the adverse effects of rent seeking on growth, and suggests that rent seeking breeds on poor governance and institutions [Lane and Tornell (1995)]. Proponents of this model argue that resource-rich countries are subject to more extreme rent seeking than resourcepoor because natural resources tend to be capital-intensive and generate a lot of rents. Hence, in a weak institutional setting, rent-seeking may adversely affect growth through the political economy. In particular, resources and state capture may lead to sub-optimal allocation and diversion of public resources in the form of capital flight, and ultimately contracts public investments and growth by raising the national saving gap [Ndikumana and Boyce (2008), Fofack and Ndikumana (2009)].<sup>27</sup> At the same time, capital flight is the fact of elites, and the underlying skewed distribution of income in resource capture and state predation may also heighten inequality and poverty. In the extreme case of “roving bandit” institutional framework where there is little incentives to invest in productive capacity for long-run growth, the culture of rent may also fuel conflicts, especially when competing factions fight for limited resources [Rowley (2000), Collier and Hoffler (2004)]. Under these extreme cases, ethno-linguistic fractionalization, increasingly used to explain the natural resource curse becomes the natural extension of rent seeking models.<sup>28</sup> Natural resources-dependent nations are also exposed to negative terms of trade shocks intrinsically inherent with commodity prices fluctuations—the commodity prices volatility channel. Under this

> 26 These income-based poverty estimates are consistent with the UN-based Human Development Index, which is a composite one. According to this index, the poorest thirty countries in the world are all located in SubSaharan Africa, with the exception of Haiti [UNDP (2008)].

> 27 Capital flight has reached epic proportion in the Sub-Saharan African region, which is now viewed as a net creditor to the rest of the world [Ndikumana and Boyce (2008)].

> 28 This is particularly the case because proponents of this theory postulate that ethno-linguistic fractionalization is more prone in a resource-abundant environment—essentially implying that the economic argument may actually trounce ethno-linguistic differences.

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