The development / underdevelopment gap!

By Anas KOSSENTINI
Ph.D Student in Accounting

By the same author in this blog (Link)
Du même auteur dans ce blog (Lien)

The developing countries face difficult problems in their attempts to achieve progress in their economic development programs. While not meant to be complete, these problems can be classified as either domestic (e.g. economic growth, unemployment, population growth, poverty, education) or international (foreign direct investment, aids and supports from international finance organizations, international trade and development).

Professor Belkaoui (1994, 2002) considers that accounting plays a crucial role in economic development too by providing the right information necessary to solve the above-mentioned problems. Furthermore, he asserts the particular important role of accounting in development planning in general and project appraisal in particular. For a long time period, the developing countries are characterized by relatively inadequate and unreliable accounting systems and generally bad governed and untested standard-setting institutions (e.g. CNC in Tunisia).

The standard-setting process in the developing countries has not followed a unique strategy proper to these countries and their context. What is the best accounting standard-setting strategy that a developing country must opt for? … Why recently an increased number of developing countries choose to opt for the IFRS adoption strategy? If the use of a single set of accounting standards (like IFRS) can be beneficial, why benefits and advantages arising from IFRS adoption differ from a developing country to another?

Obviously, all questions presented above are of interest to the readers of this blog. Previous literature in international accounting provides mitigated results regarding the IFRS adoption benefits to developing countries. Why a given developing country succeeds in the IFRS adoption process while another developing country fails? This is because developing countries do not experience the same stage of development… This is because developing countries are not homogenous… This is because the obvious concept of “developing countries” is really not well understood!
Less developed countries (LDCs), underdeveloped countries (UDCs), developing countries (DCs), emerging economies, economies in transition… Undoubtedly these classifications are not the same but they can share some common characteristics of underdevelopment.

The meaning of underdevelopment

Underdevelopment is shocking: The squalor, disease, unnecessary deaths, and hopelessness of it all! No man understands if underdevelopment remains for him a mere statistic reflecting low income, poor housing, premature mortality and underemployment (Goulet, 1971, Belkaoui, 1994).
Todaro (1985) lists six broad categories of underdevelopment:
1. Low levels of living
2. Low levels of productivity
3. High rates of population growth and dependency burdens
4. High and rising levels of unemployment and underemployment
5. Significant dependence on agriculture production and primary product exports
6. Dominance, dependence, and vulnerability in international relations.

One of these categories and/or the matching of any number of these categories in a given country create a state of underdevelopment. It is the result of not only economic but also social forces, not only internal but also external factors, and not only national but also international origins (Belkaoui, 1994).
The former secretary general of the United Nations Kofi Anan defined a developed country as follows: “A developed country is one that allows all its citizens to enjoy a free and healthy life in a safe environment”. But what is the meaning of development?

The meaning of development

The development involves the economic, social, and institutional process necessary to efficiently eliminate the gap of underdevelopment (Belkaoui, 2002). In general, LDCs, UDCs and DCs are countries which have not yet achieved a significant degree of industrialization and which have a low human life and happiness (Belkaoui, 1988). If it is easy to understand the economic sense of industrialization, the concepts of human life and human happiness that are generally grouped in the standard of living need to be clarified. Belkaoui (1994) argues that human life and/or human happiness are universal goals and values sought by every developing country. These values include life sustenance (requirement for food, shelter, healing, or survival), self-esteem (where every person’s sense that he or she is respected and it is not used as a tool by others for their own purposes), and freedom.

All these values are already seen as the ingredients of our lovely Tunisian revolution. Nevertheless, by definition these values characterize the standard of living of developed nations. Seeking such values by the citizens of a developing country might be questioned!
Some countries approach the meaning of development but it still a little bit of underdevelopment not yet eliminated. The United Nations and the International Monetary Fund, in their websites, do not include Eastern Europe countries, former Soviet Union countries, China, Brazil and Turkey neither in the developed countries group nor in the developing countries group. Some international reports refer to these countries as “economies in transition”.
The World Bank classifies countries into four income groups (without specifying the developing or the developed countries). Economies were divided according to the Gross National Income (GNI) per capita using the following ranges of income:

 Low income countries had GNI per capita of US$1,005 or less.
 Lower middle income countries had GNI per capita between US$1,006 and US$3,975.
 Upper middle income countries had GNI per capita between US$3,976 and US$12,275.
 High income countries had GNI above US$12,276.

Some international rating agencies, like Standard & Poor’s, provide a new classification of countries: (1) developed economies and (2) emerging economies. It is noteworthy that developed economies are the same that developed countries highlighted by International organizations (IMF and UN). It is in the emerging economies list that we realize that many countries are dropped out (e.g. Kenya, Uganda, Yemen …). These countries are generally those classified as low income countries in the WB website. Following this classification we can find in the same group of emerging economies some developing countries (as defined and classified by the UN and the IMF) and all economies in transition (presented previously).

Finally, let’s go back to the subject: Why a given developing country succeeds in the IFRS adoption process while another developing country fails? I believe that a part of the answer should be found in the countries’ classification itself with respect to the state of development and/or underdevelopment. In other words, below a certain threshold level of underdevelopment we can hypothesize a high likelihood of failure in the IFRS adoption process.

References

Belkaoui, A. R. (1988). The new environment in international accounting: issues and practices. West Port: Quorum Books.

Belkaoui, A. R. (2002). International accounting and economic development: the interaction of accounting, economic and social indicators. West Port: Quorum Books.

Belkaoui, A.-R. (1994). Accounting in the Developing Countries. Westport, Connecticut, London: Quorum Books.

Goulet, D. (1971). The Cruel Choice: A New Concept in the Theory of Development. New York: Atheneum.
Todaro, M. P. (1985). Economic Development in the Third World.New York: Longman.