Essentially, the two gap model is based on the gap between a country's own provision of
resources and its absorptive capacity. These two gaps are known as the Savings Gap and
the Foreign Exchange Gap. Whichever of the two gaps is binding (or is the greatest) will
constrain the amount of investment and capital formation, which can be undertaken.
(1) The Savings Gap Where savings fall short of what can be effectively and
productively invested.
(2) The Foreign Exchange Gap
Where earnings of foreign exchange fall short of t