While the two gaps are distinct and separate ones, international transfers can, in fact, be
used to fill both. For example, a machine given to a country represents both an import for
which no resources need to be exported (thus alleviating the foreign exchange gap) and
an investment good which does not have to be offset by domestic saving (thus alleviating
the savings gap). We should also note that the notion of two gaps is not consistent with
neo-classical economic theory. Neo-classical economics assumes that resources can be
easily shifted between different employments. Thus, whenever idle resources (excess
capacity) exist, these idle resources can be used to produce exports, and exports can be
increased by simply altering the exchange rate - i.e., by devaluing. Conversely, idle
resources can be used to produce capital goods, intermediate inputs and the like, so that
foreign exchange constraints can be eliminated. Concerning the latter, excess labour can,
for example, be put to work to create labour intensive capital goods.
Proponents of the two-gap model contend that imperfections and rigidities exist which
preclude the economy from working according to the neo-classical edicts. For example,
many governments may not think it desirable to do what neo-classical economics
suggests they ought to do. As well, actions which may be theoretically proper may simply
not be effective since they are implemented in an environment totally different from that
perceived by neo-classical economics.