The ‘Need’ For Foreign Resources, Absorptive Capacity and Debt Servicing Capacity

Abstract

The three phrases in the title of this article are used frequently by practitioners of foreign aid. Although this terminology has wide currency, the professional economist is aware of ambiguities in each concept. The Round Table Conference on Capital Movements and Economic Development is an appropriate forum at which to air these difficulties and to attempt more precise definitions. The object of this paper is to take up these three concepts in turn and to see how far we can go in this direction. Furthermore, we will try to examine the operational content of these concepts, i.e. the extent to which ‘need’ for foreign resources, absorptive capacity and debt servicing capacity can be measured. Finally, we will attempt to elucidate significant relationships among these concepts and draw some conclusions regarding the rationale and strategy of foreign aid decisions.