Role in Economic Development

The objective of foreign aid is the achievement of sustained economic growth by the recipient country achieving a given target rate of growth which can be sustained without further external assistance. We may notice three basic approaches to foreign aid requirements  for a developing country 1) The savings investment gap approach2) foreign exchange earnings and expenditure gap and 3) the capital absorption approach. The first two approaches the savings investment gap and foreign exchange earnings and expenditure gap yield identical results. Foreign aid is equal to both the gap between imports and exports and the gap between domestic investment expenditure and domestic savings. The third approach the capital absorption approach assesses the capital requirements ofa developing country on the basis of the ability of an economy to utilize both domestic and foreign capital efficiently it should yield  a minimum rate of return.