ABSTRACT
This chapter presents a critical review of theoretical models for the determination of aid requirements for achieving quantitative growth goals. It examines the capital flow and debt service implications of different patterns of resource transfers to developing countries financed by loans under varying interest and repayments terms. The chapter discusses the development planners and foreign-assistance agencies employ theoretical models of the type. It also examines foreign-aid theories largely in terms of the goal of self-sustaining growth to be achieved by a finite amount of aid. The chapter provides the capital-absorption approach, which is not based on the self-generating growth thesis. The foreign-exchange earnings-expenditure gap approach to capital import requirements focuses on import capacity as the principal constraint on domestic investment and growth. The foreign-exchange gap is calculated by partial equilibrium methods that are inconsistent with the savings-gap calculation. Some approaches provide alternative solutions to the foreign-exchange gap: capital imports, increased export opportunities, or import substitution.
