A Development Model and Foreign Aid Requirements in Pakistan

In the transitional period of development, absorptive capacity is not a binding constraint to development for long. As attempts to increase investment are made in a bid to achieve the desired growth rate, savings fall short of funds required for the purpose. In the initial period of development, the underdeveloped countries like Pakistan generally face the emergence of a gap [6a] between investment and savings which we will refer to as the resources gap. If domestic resources are sufficient to generate required savings, there may be another limit to the investment of these resources due to lack of complementary inputs, in which their own production Capacity is limited, and their traditional exports are not, in general, sufficient to finance the imports of capital goods and other complementary inputs in accordance with the needs of the economy. Therefore, there emerges another gap termed as the trade gap.