The earlier study on the role of foreign aid on economic growth was undertaken by Chenery and Strout (1966)
using “two-gap” model. In this model, they assumed that foreign aid filling the financing gap and trade balance
gap simultaneously. The financing gap means that a country has insufficient resources for investments. While
trade balance gap is the gap between import requirement for a targeted level of production and foreign-exchange
earnings, which implies that a country possesses insufficient foreign currency to pay for imports. Perhaps foreign
aid will dissolve the “vicious circle of poverty” and connects less developed countries to the virtuous circle of
productivity and growth. Then inceased in growth will improve the standard of living of the poor countries.