Foreign Aid to Bangladesh: Some Iconoclastic Issues

The famous 'Two Gap' economic theory suggests that an injection of foreign aid raises investment and savings of a country. However, a number of empirical studies have found that foreign aid has actually supplanted savings in many countries. The paper investigates the relationship between aid and gross domestic savings in Bangladesh and finds that these two variables are independent and have no effects on each other, which are different findings compared to other studies. Moreover, this paper concentrates on the capacity of Bangladesh economy to bear the obligation of foreign aid. Unlike some other papers, this one finds out that although the interest payment and total debt service charge of the loan are increasing, it is not a mishap because export earnings and income of economy of Bangladesh are increasing sufficiently enough to bear the burden. So, against the conventional characteristics of foreign aid to Bangladesh, this paper introduces some new issues about it.